Having already released the annual inflation adjusted retirement numbers in Notice 2021-61, discussed in an earlier article,[1] the IRS has now released Revenue Procedure 2021-45[2] that contains most of the other inflation adjusted numbers for 2022 taxes.

As the numbers relate to the law as it existed at the date of publication of the procedure, something that could change based on pending Congressional action, the procedure contains the following warning:

This revenue procedure sets forth inflation-adjusted items for 2022 for various provisions of the Internal Revenue Code of 1986 (Code), as amended, as of November 10, 2021. To the extent amendments to the Code are enacted for 2022 after November 10, 2021, taxpayers should consult additional guidance to determine whether these adjustments remain applicable for 2022.[3]

The numbers are arranged by IRC Section number in this annual publication of inflation adjusted numbers.  Some of the key figures are discussed below.

Kiddie Tax: The amount of unearned income used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax,” is $1,150 for 2022.  As well the Procedure notes “[t]he same $1,150 amount is used for purposes of § 1(g)(7) (that is, to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax”). For example, one of the requirements for the parental election is that a child’s gross income is more than the amount referenced in § 1(g)(4)(A)(ii)(I) but less than 10 times that amount; thus, a child’s gross income for 2022 must be more than $1,150 but less than $11,500.”[4]

Maximum Capital Gains Rate. The procedure provides the following brackets for capital gain rates purposes for 2022.

For taxable years beginning in 2022, the Maximum Zero Rate Amount under § 1(h)(1)(B)(i) is $83,350 in the case of a joint return or surviving spouse ($41,675 in the case of a married individual filing a separate return), $55,800 in the case of an individual who is a head of household (§ 2(b)), $41,675 in the case of any other individual (other than an estate or trust), and $2,800 in the case of an estate or trust. The Maximum 15-percent Rate Amount under § 1(h)(1)(C)(ii)(l) is $517,200 in the case of a joint return or surviving spouse ($258,600 in the case of a married individual filing a separate return), $488,500 in the case of an individual who is the head of a household (§ 2(b)), $459,750 in the case of any other individual (other than an estate or trust), and $13,700 in the case of an estate or trust.[5]

Adoption.  The procedure provides the following numbers related to the adoption credit for 2022.

For taxable years beginning in 2022, under § 23(a)(3) the credit allowed for an adoption of a child with special needs is $14,890. For taxable years beginning in 2022, under § 23(b)(1) the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $14,890. The available adoption credit begins to phase out under § 23(b)(2)(A) for taxpayers with modified adjusted gross income in excess of $223,410 and is completely phased out for taxpayers with modified adjusted gross income of $263,410 or more. See section 3.19 for the adjusted items relating to adoption assistance programs.[6]

The related numbers for adoption assistance programs for 2022 are provided as follows.

For taxable years beginning in 2022, under §137(a)(2), the amount that can be excluded from an employee’s gross income for the adoption of a child with special needs is $14,890. For taxable years beginning in 2022, under § 137(b)(1) the maximum amount that can be excluded from an employee’s gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for adoptions by the employee is $14,890. The amount excludable from an employee’s gross income begins to phase out under § 137(b)(2)(A) for taxpayers with modified adjusted gross income in excess of $223,410 and is completely phased out for taxpayers with modified adjusted gross income of $263,410 or more.[7]

Alternative Minimum Tax: The exemption amounts for the alternative minimum tax for 2022 are:

• Joint Returns or Surviving Spouses - $118,100

• Unmarried Individuals (other than Surviving Spouses) - $75,900

• Married Individuals Filing Separate Returns - $59,050

• Estates and Trusts - $26,500

The exemptions start to phase out in 2022 at:

• Joint Returns or Surviving Spouses – begins at $1,079,800, completely phased out at $1,552,200

• Unmarried Individuals (other than Surviving Spouses) – begins at $539,900, completely phased out at $843,500

• Married Individuals Filing Separate Returns – begins at $539,900, completely phased out at $776,100

• Estates and Trusts – begins at $88,300, completely phased out at $194,300[8]

Classroom Expenses of Elementary and Secondary School Teachers.  The amount of expenses allowed as an above the line deduction that consists of expenses paid or incurred by an eligible educator in connection with books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used by the eligible educator in the classroom is $300 for 2022.[9]

Standard Deduction.  The base standard deductions for 2022 are:

• Married Individuals Filing Joint Returns and Surviving Spouses (§ 1(j)(2)(A)) - $25,900

• Heads of Households (§ 1(j)(2)(B)) - $19,400

• Unmarried Individuals (other than Surviving Spouses and Heads of Households) (§ 1(j)(2)(C) - $12,950

• Married Individuals Filing Separate Returns (§ 1(j)(2)(D)) - $12,950[10]

The standard deduction for an individual claimed as a dependent in 2022 can exceed the greater of:

• $1,150 or

• The sum of $400 and the person’s earned income.[11]

The additional standard deduction for those who are aged 65 or greater or those who are blind is $1,400.  This additional deduction is increased to $1,750 if the individual is also unmarried and not a surviving spouse.[12]

Cafeteria Plans:  For plan years beginning in 2022, the dollar limitation for voluntary employee salary reductions for contributions to health flexible spending arrangements is $2,850. If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $570.[13]

Maximum Income for Qualifying Relative.  For 2022, the maximum gross income for any qualifying relatives to be able to be claimed as a dependent is $4,400.[14]

Section 179 Numbers.  For 2022, the following key numbers apply to IRC §179 expensing:

• Maximum cost of property for which a §179 election is made: $1,080,000

• Limit on costs for sports utility vehicle taken into account under IRC §179: $27,000

• The amount available for §179 expensing is phase out beginning when total §179 property placed in service during the year exceed $2,700,000.[15]

§199A Qualified Business Income Numbers. For 2022, the threshold amount and end of the phase in range are:

• Married Individuals Filing Joint Returns – threshold amount is $340,100 and the phase-in range ends at $440,100

• Married Individuals Filing Separate Returns – threshold amount is $170,050 and the phase-in range ends at $220,050

• All Other Returns - threshold amount is $170,050 and the phase-in range ends at $220,050.[16]

Small Accounting Methods.  For 2022, the maximum gross receipt level to qualify for various benefits under the small accounting methods of the Tax Cuts and Jobs Act (cash basis of accounting, exemption from §163(j) interest rules, non-§471(c) inventory methods, exemption from §263A, and treatment as a small contractor) is $27,000,000.[17]

Excess Business Loss.  For 2022, the limit for an excess business loss under IRC §461(l) is $270,000 ($540,000 for joint returns).[18]

Foreign Earned Income Exclusion. For 2022, the foreign earned income exclusion is $112,000.[19]

Unified Credit Against Estate Tax. The basic exclusion amount for decedents dying in 2022 is $12,060,000.[20]

Annual Exclusion for Present Interest Gifts.  The annual exclusion for a gift of a present interest in 2022 will be $16,000.[21]

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). The limit on reimbursement for an employer plan to qualify as an QSEHRA is $5,450 ($11,050 for family coverage).[22]

[1] Ed Zollars, CPA, “Cost of Living Retirement and Fringe Benefit Amounts for 2022 Published by the IRS,” Current Federal Developments Website, November 4, 2021, https://www.currentfederaltaxdevelopments.com/blog/2021/11/4/cost-of-living-retirement-and-fringe-benefit-amounts-for-2022-published-by-the-irs

[2] Revenue Procedure 2021-45, November 10, 2021, https://www.taxnotes.com/research/federal/irs-guidance/revenue-procedures/irs-releases-inflation-adjusted-items-for-2022/7cld7?h=2021-45

[3] Revenue Procedure 2021-45, November 10, 2021

[4] Revenue Procedure 2021-45, Section 2.02, November 10, 2021

[5] Revenue Procedure 2021-45, Section 2.03, November 10, 2021

[6] Revenue Procedure 2021-45, Section 2.04, November 10, 2021

[7] Revenue Procedure 2021-45, Section 2.19, November 10, 2021

[8] Revenue Procedure 2021-45, Section 2.11, November 10, 2021

[9] Revenue Procedure 2021-45, Section 2.13, November 10, 2021

[10] Revenue Procedure 2021-45, Section 2.13(1), November 10, 2021

[11] Revenue Procedure 2021-45, Section 2.13(2), November 10, 2021

[12] Revenue Procedure 2021-45, Section 2.13(3), November 10, 2021

[13] Revenue Procedure 2021-45, Section 2.16, November 10, 2021

[14] Revenue Procedure 2021-45, Section 2.24, November 10, 2021

[15] Revenue Procedure 2021-45, Section 2.25, November 10, 2021

[16] Revenue Procedure 2021-45, Section 2.27, November 10, 2021

[17] Revenue Procedure 2021-45, Section 2.31, November 10, 2021

[18] Revenue Procedure 2021-45, Section 2.32, November 10, 2021

[19] Revenue Procedure 2021-45, Section 2.39, November 10, 2021

[20] Revenue Procedure 2021-45, Section 2.41, November 10, 2021

[21] Revenue Procedure 2021-45, Section 2.41, November 10, 2021

[22] Revenue Procedure 2021-45, Section 2.62, November 10, 2021