5 IRS changes you need to know this year

With the tax filing deadline fast approaching, the changes made by the IRS are under closer scrutiny. Here’s a list of what’s new concerning tax limits, standard deductions, credits and more.

Standard Deduction

The amount of standard deduction has been raised for tax year 2022. Standard deduction refers to a fixed amount that the IRS allows tax filers to exclude from their taxes.

For tax year 2022, single filers (as well as couples filing separately) get a standard deduction of $12,950, an increase of $400 from the previous year. Those who are married and are filing the returns jointly can get a standard deduction of $25,900, up by $800. Head-of-household filers get standard deduction of $19,400, a $600 increase.

Marginal Tax Rates

The IRS slightly changed tax brackets for the 2022 tax year. Contrary to the Biden administration’s claims that the rich will pay more, they’ve actually raised the income limits for many of their tax brackets keeping them in the lower tax brackets. The top tax rate of 37 percent is now applicable to single taxpayers with incomes higher than $539,900, up from $523,600 in the previous tax year 2021. For married couples filing jointly, the threshold has been raised from $628,300 to $647,850.

The lowest 10 percent tax is applicable to those making $10,275 or less in the case of single filers, up from $9,950 last year. For the 22 percent bracket, the limit has been raised from $40,525 to $41,775. For the 24 percent bracket, the limit has risen from $86,375 to $89,075. Limits on the 12 percent, 32 percent, and 37 percent brackets have also been raised.

Child Tax Credit

Congress had raised the child tax credit (CTC) in 2021, but did not renew this in 2022. In the 2021 tax year, parents with kids aged five years and younger received a CTC of $3,600 per child, with children between the ages of six and 17 netting a CTC of $3,000. For the 2022 tax year, all children under the age of 17 regardless of age only net a CTC of $2,000.

Earned Income Tax Credit (EITC)

The EITC applied to low and moderate-income workers. The maximum credit amount in the 2021 tax year was between $1,520 and $6,728. For the 2022 tax year, this has been changed to between $560 and $6,935.

The amount of credit is dependent on the level of income, filing status, and the number of children of the filer. The limit on maximum earned income for joint filers with more than three kids has been raised from $57,414 to $59,187.

Estate Tax, Gifts

In tax year 2021, estates of decedents who died in 2021 had a basic exclusion amount of $11.7 million. This has been raised to $12.06 million for the 2022 tax year. The annual exclusion for gifts has been raised from $15,000 in calendar year 2021 to $16,000 in calendar year 2022.

The deadline for filing tax year 2022 returns is set on April 18, 2023.

For the 2023 tax year—to be filed in 2024—the IRS has raised the limits of standard deduction once again, boosted tax brackets by around 7 percent, and also increased the credit limit on EITC.

–Wire services