Tax Exemption Amounts Increase for 2022

The Internal Revenue Service has announced that several gift and estate tax exemption amounts will be increasing for 2022. 

• The annual gift tax amount, 
• The lifetime estate and gift tax exemption, and 
• The annual amount that one may give to a non-U.S. citizen spouse. 

Annual Gift Tax Exclusion 

Each year, the IRS sets the annual gift tax exclusion, which allows a taxpayer to gift a certain amount per recipient tax-free without using up any of his or her lifetime gift and estate tax exemption.  

The annual gift tax exclusion is increasing to $16,000 per recipient for 2022—the highest exclusion amount ever. Married couples will be able to gift $32,000 per year per recipient. 

Lifetime Estate and Gift Tax Exemption 

The estate and gift tax exemption, which we mentioned a few times above, will increase to $12.06 million per individual. 

This means that a married couple will not have to pay federal estate or gift tax on any amount up to an aggregate of $24.12 million. Couples that have maxed out on lifetime gifts now have an additional $720,000 they can gift in 2022. 

It is important to note that the gift and estate tax exemption are linked; the use of one’s gift tax exemption will reduce the amount one may leave at death estate-tax-free. 

If someone gifts an amount that exceeds the annual gift tax exclusion, that person will use a portion of the lifetime gift tax exemption. In doing so, one must file a gift tax return, due April 15 in the following year, to report the gift and track the amount of the lifetime exemption that has been used. 

Be aware that this exemption is set to be halved at the start of 2026 down to $6.03 million per the Build Back Better Act.  

Gifts to Non-U.S. Citizen Spouse 

The annual amount that one may give to a spouse who is not a US citizen will increase to $164,000 in 2022. 

Generally, spouses who are both US citizens may transfer unlimited amounts to each other without incurring any gift tax. Gifts to a non-US citizen spouse, however, are limited. 

Since a non-US citizen spouse may not be subject to the US estate tax, which we will elaborate on next, one cannot transfer unlimited assets to a non-US citizen spouse. This is to prevent the transferred wealth from avoiding U.S. estate taxation upon the non-US citizen spouse’s death.   

Basic Employee Contribution 

The basic employee contribution limit for 2022 will be $20,500. This limit includes all elective employee salary deferrals and any after-tax contributions made to a Roth account within your 401(k) or a special Roth 401(k) plan. For people aged 50 and older, you can add an additional $6,500.  

_{Disclaimer: Kwik Mortgage Corporation and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.}