Benefits
The Tax Blotter – July 2022
Many provisions in the tax law are indexed for inflation, so they go up virtually every year. Yet there are several interesting twists and turns for taxpayers.
Jul. 18, 2022
The Tax Blotter is a recap of recent taxation news.
Many provisions in the tax law are indexed for inflation, so they go up virtually every year. Yet there are several interesting twists and turns for taxpayers.
Expect less tax impact. Inflation is increasing so taxpayers will benefit from higher income tax brackets. But the changes won’t be as pronounced as you might think. Under a little-noticed provision in the Tax Cuts and Jobs Act (TCJA), the method used to calculate inflation indexing was changed from CPI-U method to the chained CPI-U method. We’ll spare you all the gory details, but this will generally result in smaller inflation adjustments.
Stick with the status quo. Even worse, some tax thresholds aren’t indexed for inflation at all. Classic example: The first tier for taxing Social Security benefits of retirees begins at the relatively modest levels of $25,000 for single filers and $32,000 for joint filers. These figures haven’t budged an inch in decades. Legislation proposed in Congress would bump up the thresholds to $35,000 and $50,000, respectively, but the proposal doesn’t have widespread support.
Max out the gift tax exclusion. Typically, inflation indexing takes place annually, even if the changes are miniscule. However, the annual gift tax exclusion is only allowed to move up in $1,000 increments. For example, after remaining stable at $15,000 per recipient for several years, the maximum exclusion amount was finally hiked from $15,00 per recipient in 2021 to $16,000 in 2022. We’ll see soon whether or not another $1,000 increase is in store for next year.