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The IRS has provided details clarifying the federal tax status involving special payments made by 21 states in 2022. Taxpayers in many states will not need to report these payments on their 2022 tax returns.

The IRS has provided details clarifying the federal tax status involving special payments made by 21 states in 2022. Taxpayers in many states will not need to report these payments on their 2022 tax returns.

General welfare and disaster relief payments

If a payment is made for the promotion of the general welfare or as a disaster relief payment, for example related to the COVID 19 pandemic, it may be excludable from income for federal tax purposes under the General Welfare Doctrine or as a Qualified Disaster Relief Payment. Payments from the following states fall in this category and the IRS will not challenge the treatment of these payments as excludable for federal income tax purposes in 2022:

• California,

• Colorado,

• Connecticut,

• Delaware,

• Florida,

• Hawaii,

• Idaho,

• Illinois,

• Indiana,

• Maine,

• New Jersey,

• New Mexico,

• New York,

• Oregon,

• Pennsylvania, and

• Rhode Island.

Alaska is in this group only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend. Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes to which the above treatment applies, and one of the payments is in the category of disaster relief payment. A list of payments to which the above treatment applies is available on the IRS website.

Refund of state taxes paid

If the payment is a refund of state taxes paid and recipients either claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) the payment is not included in income for federal tax purposes. Payments from the following states in 2022 fall in this category and will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted.

• Georgia,

• Massachusetts,

• South Carolina, and

• Virginia

Other Payments

Other payments that may have been made by states are generally includable in income for federal income tax purposes. This includes the annual payment of Alaska’s Permanent Fund Dividend and any payments from states provided as compensation to workers.

The IRS intends to change how it defines vans, sports utility vehicles (SUVs), pickup trucks and “other vehicles” for purposes of the Code Sec. 30D new clean vehicle credit. These changes are reflected in updated IRS Frequently Asked Questions (FAQs) for the new, previously owned and commercial clean vehicle credits.

The IRS intends to change how it defines vans, sports utility vehicles (SUVs), pickup trucks and “other vehicles” for purposes of the Code Sec. 30D new clean vehicle credit. These changes are reflected in updated IRS Frequently Asked Questions (FAQs) for the new, previously owned and commercial clean vehicle credits.

Clean Vehicle Classification Changes

For a vehicle to qualify for the new clean vehicle credit, its manufacturer’s suggested retail price (MSRP) cannot exceed:

• $80,000 for a van, SUV or pickup truck; or

• $55,000 for any other vehicle.

In December, the IRS announced that proposed regulations would define these vehicle types by reference to the general definitions provided in Environmental Protection Agency (EPA) regulations in 40 CFR 600.002 (Notice 2023-1).

However, the IRS has now determined that these vehicles should be defined by reference to the fuel economy labeling rules in 40 CFR 600.315-08. This change means that some vehicles that were formerly classified as “other vehicles” subject to the $55,000 price cap are now classified as SUVs subject to the $80,000 price cap.

Until the IRS releases proposed regulations for the new clean vehicle credit, taxpayers may rely on the definitions provided in Notice 2023-1, as modified by today’s guidance. These modified definitions are reflected in the Clean Vehicle Qualified Manufacturer Requirements page on the IRS website, which lists makes and models that may be eligible for the clean vehicle credits.

Expected Definitions of Vans, SUVs, Pickup Trucks and Other Vehicles

The EPA fuel economy standards establish a large category of nonpassenger vehicles called “light trucks.” Within this category, vehicles are defined largely by their gross vehicle weight ratings (GVWR) as follows:

• Vans, including minivans

• Pickup trucks, including small pickups with a GVWR below 6,000 pounds, and standard pickups with a GVWR between 6,000 and 8,500 pounds

• SUVs, including small SUVs with a GVWR below 6.000 pounds, and standard SUVs with a GVWR between 6,000 and 10,000 pounds

• Other vehicles (passenger automobiles) that, based on seating capacity of interior volume, are classified as two-seaters; mini-compact, subcompact, compact, midsize, or large cars; and small, midsize, or large station wagons.

However, the EPA may determine that a particular vehicle is more appropriately placed in a different category. In particular, the EPA may determine that automobiles with GVWR of up to 8,500 pounds and medium-duty passenger vehicles that possess special features are more appropriately classified as “special purpose vehicles.” These special features may include advanced technologies, such as battery electric vehicles, fuel cell vehicles, plug-in hybrid electric vehicles and vehicles equipped with hydrogen internal combustion engines.

FAQ Updates

The IRS also updated its frequently asked questions (FAQs) page for the Code Sec. 30D new clean vehicle credit, the Code Sec. 25E previously owned vehicle credit and the Code Sec. 45W qualified commercial clean vehicles credit. In addition to incorporating the new definitions discussed above, these updates:

• Define “original use” and "MSRP;"

• Describe the information a seller must provide to the taxpayer and the IRS;

• Clarify that the MSRP caps apply to a vehicle placed in service (delivered to the taxpayer) in 2023, even if the taxpayer purchased it in 2022; and

• Explain what constitutes a lease.

Effect on Other Documents

Notice 2023-1 is modified. Taxpayers may rely on the definitions provided in Notice 2023-1, as modified by Notice 2023-16, until the IRS releases proposed regulations for the new clean vehicle credit.

The IRS established the program to allocate environmental justice solar and wind capacity limitation (Capacity Limitation) to qualified solar and wind facilities eligible for the Low-Income Communities Bonus Credit Program component of the energy investment credit.

The IRS established the program to allocate environmental justice solar and wind capacity limitation (Capacity Limitation) to qualified solar and wind facilities eligible for the Low-Income Communities Bonus Credit Program component of the energy investment credit. The IRS also provided:

• initial guidance regarding the overall program design ,

• the application process, and

• additional criteria that will be considered in making the allocations.

After the 2023 allocation process begins, the Treasury Department and IRS will monitor and assess whether to implement any modifications to the Low-Income Communities Bonus Credit Program for calendar year 2024 allocations of Capacity Limitation.

Facility Categories, Capacity Limits, and Application Dates

The program establishes four facilities categories and the capacity limitation for each:

The IRS anticipates applications will be accepted for Category 3 and Category 4 facilities in the third quarter of 2023. Applications for Category 1 and Category 2 facilities will be accepted thereafter. The IRS will issue additional guidance regarding the application process and facility eligibility.

The program will also incorporate additional criteria in determining how to allocate the Capacity Limitation reserved for each facility category among eligible applicants. These may include a focus on facilities that are owned or developed by community-based organizations and mission-driven entities, have an impact on encouraging new market participants, provide substantial benefits to low-income communities and individuals marginalized from economic opportunities, and have a higher degree of commercial readiness.

Finally, only the owner of a facility may apply for an allocation of Capacity Limitation. Facilities placed in service prior to being awarded an allocation of Capacity Limitation are not eligible to receive an allocation. The Department of Energy (DOE) will provide administration services for the Low-Income Communities Bonus Credit Program. An allocation of an amount of capacity limitation is not a determination that the facility will qualify for the energy investment credit or the increase in the credit under the Low-Income Communities Bonus Credit Program.

The IRS announced a program to allocate $10 billion of credits for qualified investments in eligible qualifying advanced energy projects (the Code Sec. 48C(e) program). At least $4 billion of these credits may be allocated only to projects located in certain energy communities.

The IRS announced a program to allocate $10 billion of credits for qualified investments in eligible qualifying advanced energy projects (the Code Sec. 48C(e) program). At least $4 billion of these credits may be allocated only to projects located in certain energy communities.

The guidance announcing the program also:

• defines key terms, including qualifying advanced energy project, specified advanced energy property, eligible property, the placed in service date, industrial facility, manufacturing facilities, and recycling facility;

• describes the prevailing wage and apprenticeship requirements, along with remediation options; and

• sets forth the program timeline and the steps the taxpayer must follow.

Application and Certification Process

For Round 1 of the Section 48C(e) program, the application period begins on May 31, 2023. The IRS expects to allocate $4 billion in credit in this round, including $1.6 billion to projects in energy communities.

The taxpayer must submit a concept paper detailing the project by July 31, 2023. The taxpayer must also certify under penalties of perjury that it did not claim a credit under several other Code Sections for the same investment.

Within two years after the IRS accepts an allocation application, the taxpayer must submit evidence to the DOE to establish that it has met all requirements necessary to commence construction of the project. DOE then notifies the IRS, and the IRS certifies the project.

Taxpayers generally submit their papers through the Department of Energy (DOE) eXHANGE portal at https://infrastructure-exchange.energy.gov/. The DOE must recommend and rank the project to the IRS, and have a reasonable expectation of its commercial viability.

Energy Communities and Progress Expenditures

The guidance also provides additional procedures for energy communities and the credit for progress expenditures.

For purposes of the minimum $4 billion allocation for projects in energy communities, the DOE will determine which projects are in energy community census tracts. Additional guidance is expected to provide a mapping tool that applicants for allocations may use to determine if their projects are in energy communities.

Finally, the guidance explains how taxpayers may elect to claim the credit for progress expenditures paid or incurred during the tax year for construction of a qualifying advanced energy project. The taxpayer cannot make the election before receiving its certification letter.

The IRS has released new rules and conditions for implementing the real estate developer alternative cost method. This is an optional safe harbor method of accounting for real estate developers to determine when common improvement costs may be included in the basis of individual units of real property in a real property development project held for sale to determine the gain or loss from sales of those units.

The IRS has released new rules and conditions for implementing the real estate developer alternative cost method. This is an optional safe harbor method of accounting for real estate developers to determine when common improvement costs may be included in the basis of individual units of real property in a real property development project held for sale to determine the gain or loss from sales of those units.

Background

Under Code Sec. 461, developers cannot add common improvement costs to the basis of benefitted units until the costs are incurred under the Code Sec. 461(h) economic performance requirements. Thus, common improvement costs that have not been incurred under Code Sec. 461(h) when the units are sold cannot be included in the units' basis in determining the gain or loss resulting from the sales. Rev. Proc. 92-29, provided procedures under which the IRS would consent to developers including the estimated cost of common improvements in the basis of units sold without meeting the economic performance requirements of Code Sec. 461(h). In order to use the alternative cost method, the taxpayer had to meet certain conditions, provide an estimated completion date, and file an annual statement.

Rev. Proc. 2023-9 Alterative Cost Method

In releasing Rev. Proc. 2023-9, the IRS and Treasury stated that they recognized certain aspects of Rev. Proc. 92-29 are outdated, place additional administrative burdens on developers and the IRS, and that application of the method to contracts accounted for under the long-term contract method of Code Sec. 460 may be unclear.

The alternative cost method must be applied to all projects in a trade or business that meet the definition of a qualifying project. However, the alternative cost limitation of this revenue procedure is calculated on a project-by-project basis. Thus, common improvement costs incurred for one qualifying project may not be included in the alternative cost method calculations of a separate qualifying project.

The revenue procedure provides definitions including definitions of "qualifying project,""reasonable method," and "CCM contract" (related to the completed contract method). It provides rules for application of the alternative cost method for developers using the accrual method of accounting and the completed contract method of accounting, rules for allocating estimated common improvement costs, and a method for determining the alternative costs limitation. The revenue procedure also provides examples of how its rules are applied.

Accounting Method Change Required

Under Rev. Proc. 2023-9, the alternative cost method is a method of accounting. A change to this alternative cost method is a change in method of accounting to which Code Secs. 446(e) and 481 apply. An eligible taxpayer that wants to change to the Rev. Proc. 2023-9 alternative cost method or that wants to change from the Rev. Proc. 92-29 alternative cost method, must use the automatic change procedures in Rev. Proc. 2015-13 or its successor. In certain cases, taxpayers may use short Form 3115 in lieu of the standard Form 3115 to make the change.

Effective Date

This revenue procedure is effective for tax years beginning after December 31, 2022.

The IRS announced that taxpayers electronically filing their Form 1040-X, Amended U.S Individual Income Tax Return, will for the first time be able to select direct deposit for any resulting refund. 

The IRS announced that taxpayers electronically filing their Form 1040-X, Amended U.S Individual Income Tax Return, will for the first time be able to select direct deposit for any resulting refund. Previously, taxpayers had to wait for a paper check for any refund, a step that added time onto the amended return process. Following IRS system updates, taxpayers filing amended returns can now enjoy the same speed and security of direct deposit as those filing an original Form 1040 tax return. Taxpayers filing an original tax return using tax preparation software can file an electronic Form 1040-X if the software manufacturer offers that service. This is the latest step the IRS is taking to improve service this tax filing season.

Further, as part of funding for the Inflation Reduction Act, the IRS has hired over 5,000 new telephone assistors and is adding staff to IRS Taxpayer Assistance Centers (TACs). The IRS also plans special service hours at dozens of TACs across the country on four Saturdays between February and May. No matter how a taxpayer files the amended return, they can still use the "Where's My Amended Return?" online tool to check the status. Taxpayers still have the option to submit a paper version of Form 1040-X and receive a paper check. Direct deposit is not available on amended returns submitted on paper. Current processing time is more than 20 weeks for both paper and electronically filed amended returns.

"This is a big win for taxpayers and another achievement as we transform the IRS to improve taxpayer experiences," said IRS Acting Commissioner Doug O’Donnell. "This important update will cut refund time and reduce inconvenience for people who file amended returns. We always encourage directdeposit whenever possible. Getting tax refunds into taxpayers’ hands quickly without worry of a lost or stolen paper check just makes sense."

The OECD/G20 Inclusive Framework released a package of technical and administrative guidance that achieves clarity on the global minimum tax on multinational corporations known as Pillar Two. Further, it provides critical protections for important tax incentives, including green tax credit incentives established in the Inflation Reduction Act. 

The OECD/G20 Inclusive Framework released a package of technical and administrative guidance that achieves clarity on the global minimum tax on multinational corporations known as Pillar Two. Further, it provides critical protections for important tax incentives, including green tax credit incentives established in the Inflation Reduction Act. Pillar Two provides for a global minimum tax on the earnings of large multinational businesses, leveling the playing field for U.S. businesses and ending the race to the bottom in corporate income tax rates. This package follows the release of the Model Rules in December 2021, Commentary in March 2022 and rules for a transitional safe harbor in December 2022. The guidance will be incorporated into a revised version of the Commentary that will replace the prior version.

Additionally, the package includes guidance on over two dozen topics, addressing those issues that Inclusive Framework members identified are most pressing. This includes topics relating to the scope of companies that will be subject to the Global Anti-Base Erosion (GloBE) Rules and transition rules that will apply in the initial years that the global minimum tax applies. Additionally, it includes guidance on Qualified Domestic Minimum Top-up Taxes (QDMTTs) that countries may choose to adopt.

"The continued progress in implementing the globalminimum tax represents another step in leveling the playing field for U.S. businesses, while also protecting U.S. workers and middle-class families by ending the race to the bottom in corporate tax rates," said Assistant Secretary of the Treasury for Tax Policy Lily Batchelder. "We welcome this agreed guidance on key technical questions, which will deliver certainty for green energy tax incentives, support coordinated outcomes and provide additional clarity that stakeholders have asked for."

The IRS released the optional standard mileage rates for 2022. Most taxpayers may use these rates to compute deductible costs of operating vehicles for:

• business,

• medical, and

• charitable purposes

Some members of the military may also use these rates to compute their moving expense deductions.

The IRS released the optional standard mileage rates for 2022. Most taxpayers may use these rates to compute deductible costs of operating vehicles for:

• business,

• medical, and

• charitable purposes

Some members of the military may also use these rates to compute their moving expense deductions.

2022 Standard Mileage Rates

The standard mileage rates for 2022 are:

• 58.5 cents per mile for business uses;

• 18 cents per mile for medical uses; and

• 14 cents per mile for charitable uses.

Taxpayers may use these rates, instead of their actual expenses, to calculate their deductions for business, medical or charitable use of their own vehicles.

FAVR Allowance for 2022

For purposes of the fixed and variable rate (FAVR) allowance, the maximum standard automobile cost for vehicles places in service after 2021 is:

• $56,100 for passenger automobiles, and

• $56,100 for trucks and vans.

Employers can use a FAVR allowance to reimburse employees who use their own vehicles for the employer’s business.

2022 Mileage Rate for Moving Expenses

The standard mileage rate for the moving expense deduction is 18 cents per mile. To claim this deduction, the taxpayer must be:

• a member of the Armed Forces of the United States,

• on active military duty, and

• moving under a military order and incident to a permanent change of station

The Tax Cuts and Jobs Act of 2017 suspended the moving expense deduction for all other taxpayers until 2026.

Unreimbursed Employee Travel Expenses

For most taxpayers, the Tax Cuts and Jobs Act suspended the miscellaneous itemized deduction for unreimbursed employee travel expenses. However, certain taxpayers may still claim an above-the-line deduction for these expenses. These taxpayers include:

• members of a reserve component of the U.S. Armed Forces,

• state or local government officials paid on a fee basis, and

• performing artists with relatively low incomes.

Notice 2021-2, I.R.B. 2021-2, 478, is superseded.

The IRS has extended the availability of electronic signatures on certain audit and non-audit forms. Through October 31, 2023, taxpayers and their authorized representatives may electronically sign documents and email documents to the IRS. This is an exception to normal policy. Previously, the IRS had allowed e-signatures through the end of 2021.

The IRS has extended the availability of electronic signatures on certain audit and non-audit forms. Through October 31, 2023, taxpayers and their authorized representatives may electronically sign documents and email documents to the IRS. This is an exception to normal policy. Previously, the IRS had allowed e-signatures through the end of 2021.

Audit or Collection

The Service will accept e-signatures during audit or collection for:

• extensions of statute of limitations on an assessment or collection;

• waivers of statutory notice of deficiency and consents to an assessment;

• closing agreements; and

• other statements or forms collected outside standard filing procedures.

The IRS accepts two types of electronic signatures during an audit or collection interaction (1) digital signatures, and (2) imaged signatures. Regarding imaging signatures, taxpayers that do not have a digital certificate may hand sign a document, and then scan or photograph the document and save it in a standard picture format such as JPEG, TIFF or PDF.

Other Forms That Can Be Electronically Signed

Electronic signatures are also allowed through October 31, 2023 for the following forms and purposes:

• Form 11-C, Occupational Tax and Registration Return for Wagering;

• Form 637, Application for Registration (For Certain Excise Tax Activities);

• Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

• Form 706-A, U.S. Additional Estate Tax Return;

• Form 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions;

• Form 706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust;

• Form 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations;

• Form 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts;

• Form 706 Schedule R-1, Generation Skipping Transfer Tax;

• Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

• Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;

• Form 730, Monthly Tax Return for Wagers;

• Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons;

• Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;

• Form 1120-C, U.S. Income Tax Return for Cooperative Associations;

• Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation;

• Form 1120-H, U.S. Income Tax Return for Homeowners Associations;

• Form 1120-IC DISC, Interest Charge Domestic International Sales – Corporation Return;

• Form 1120-L, U.S. Life Insurance Company Income Tax Return;

• Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;

• Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return;

• Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;

• Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies;

• Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B);

• Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship;

• Form 1128, Application to Adopt, Change or Retain a Tax Year;

• Form 2678, Employer/Payer Appointment of Agent;

• Form 3115, Application for Change in Accounting Method;

• Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts;

• Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner;

• Form 4421, Declaration – Executor’s Commissions and Attorney’s Fees;

• Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes;

• Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues;

• Form 8038-G, Information Return for Tax-Exempt Governmental Bonds;

• Form 8038-GC; Information Return for Small Tax-Exempt Governmental Bond Issues, Leases, and Installment Sales;

• Form 8283, Noncash Charitable Contributions;

• Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms;

• Form 8802, Application for U.S. Residency Certification;

• Form 8832, Entity Classification Election;

• Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent;

• Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement; and

• Elections made pursuant to Code Sec. 83(b).

The IRS has released the annual inflation adjustments for 2022 for the income tax rate tables, plus more than 56 other tax provisions.

The IRS has released the annual inflation adjustments for 2022 for the income tax rate tables, plus more than 56 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

2022 Income Tax Brackets
For 2022, the highest income tax bracket of 37 percent applies when taxable income hits:

• $647,850 for married individuals filing jointly and surviving spouses,
• $539,900 for single individuals and heads of households,
• $323,925 for married individuals filing separately, and
• $13,450 for estates and trusts.

2022 Standard Deduction
The standard deduction for 2022 is:

• $25,900 for married individuals filing jointly and surviving spouses,
• $19,400 for heads of households, and
• $12,950 for single individuals and married individuals filing separately.

The standard deduction for a dependent is limited to the greater of:

• $1,150 or
• the sum of $400, plus the dependent’s earned income.

Individuals who are blind or at least 65 years old get an additional standard deduction of:

• $1,400 for married taxpayers and surviving spouses, or
• $1,750 for other taxpayers.

Alternative Minimum Tax (AMT) Exemption for 2022
The AMT exemption for 2022 is:

• $118,100 for married individuals filing jointly and surviving spouses,
• $75,900 for single individuals and heads of households,
• $59,050 for married individuals filing separately, and
• $26,500 for estates and trusts.

The exemption amounts phase out in 2022 when AMTI exceeds:

• $1,079,800 for married individuals filing jointly and surviving spouses,
• $539,900 for single individuals, heads of households, and married individuals filing separately, and
• $88,300 for estates and trusts.

Expensing Code Sec. 179 Property in 2022
For tax years beginning in 2022, taxpayers can expense up to $1,080,000 in section 179 property. However, this dollar limit is reduced when the cost of section 179 property placed in service during the year exceeds $2,700,000.

Estate and Gift Tax Adjustments for 2022
The following inflation adjustments apply to federal estate and gift taxes in 2022:

• the gift tax exclusion is $16,000 per donee, or $164,000 for gifts to spouses who are not U.S. citizens;
• the federal estate tax exclusion is $12,060,000; and
• the maximum reduction for real property under the special valuation method is $1,230,000.

2022 Inflation Adjustments for Other Tax Items
The maximum foreign earned income exclusion amount in 2022 is $112,000.

The IRS also provided inflation-adjusted amounts for the:

• adoption credit,
• lifetime learning credit,
• earned income credit,
• excludable interest on U.S. savings bonds used for education,
• various penalties, and
• many other provisions.

Effective Date of 2022 Adjustments
These inflation adjustments generally apply to tax years beginning in 2022, so they affect most returns that will be filed in 2023. However, some specified figures apply to transactions or events in calendar year 2022.

The 2022 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS.

The 2022 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2022 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

The 2022 cost-of-living adjustments (COLAs) were released for:

• pension plan dollar limitations, and
• other retirement-related provisions.

Highlights of Changes for 2022
The contribution limit has increased from $19,500 to $20,500 for employees who take part in:

• 401(k),
• 403(b),
• most 457 plans, and
• the federal government’s Thrift Savings Plan.

The catch-up contribution limit for employees aged 50 and over in the plans above remains $6,500.

The annual limit on contributions to an IRA remains unchanged at $6,000. The $1,000 IRA catch-up contribution amount is not subject to inflation adjustments.

The income ranges increased for determining eligibility to make deductible contributions to:

• IRAs,
• Roth IRAs, and
• to claim the Saver's Credit.

Phase-Out Ranges
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in a retirement plan at work. The phase out depends on the taxpayer's filing status and income.

• Single taxpayers covered by a workplace retirement plan, the phase-out range is $68,000 and $78,000, increased from between $66,000 and $76,000.
• Joint filers, when the spouse making the contribution takes part in a workplace retirement plan, the phase-out range is $109,000 and $129,000, increased from between $105,000 and $125,000.
• An IRA contributor, who is not covered by a workplace retirement plan but their spouse is, the phase out is between $204,000 and $214,000, increased from between $198,000 and $208,000.
• For a married individual filing a separate return who is covered by a workplace plan, the phase-out range remains $0 to $10,000.
• The phase-out ranges for Roth IRA contributions are:
• $129,000 to $144,000, for singles and heads of household,
• $204,000 to $214,000, for joint filers, and
• $0 to $10,000 for married separate filers.

Finally, the income limit for the Saver' Credit is:

• $68,000 for joint filers,
• $51,000 for heads of household, and
• $34,000 for singles and married filing separately.

The IRS has urged taxpayers, including ones who received stimulus payments or advance Child Tax Credit payments, to follow some easy steps for accurate federal tax returns filing in 2022.

The IRS has urged taxpayers, including ones who received stimulus payments or advance Child Tax Credit payments, to follow some easy steps for accurate federal tax returns filing in 2022.

Organized tax records
Taxpayers can easily prepare complete and accurate tax returns with the help of organized tax records. Organized tax records also help avoid errors that lead to processing and refund delays. Taxpayers must have all tax information available before filing their tax returns. Taxpayers must inform the IRS of any address changes and the Social Security Administration of a legal name change.

Recordkeeping for individuals includes the following:

• Forms W-2 from employer(s),
• Forms 1099 from banks, issuing agencies and other payers, including unemployment compensation, dividends, distributions from a pension, annuity or retirement plan,
• Form 1099-K, 1099-MISC, W-2 or other income statement for workers in the gig economy,
• Form 1099-INT for interest received, and
• other income documents and records of virtual currency transactions.

Individuals can determine if they are eligible for deductions or credits with the help of income documents. Further, taxpayers will need their related 2021 information to reconcile their advance payments of the Child Tax Credit and Premium Tax Credit. People will also need their stimulus payment and plus-up amounts to figure and claim the 2021 Recovery Rebate Credit if they received third Economic Impact Payments and think they qualify for an additional amount.

Further, taxpayers must secure the end of year documents, including the following:

• Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance Child Tax Credit payments,
• Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the Recovery Rebate Credit, and
• Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance Premium Tax Credits for Marketplace coverage.

Online Account
Taxpayers can securely gain entry to the Child Tax Credit Update Portal to see their payment dates and amounts through their Online Account. This information will be required to reconcile taxpayers’ advance Child Tax Credit payments with the Child Tax Credit they can claim when filing their 2021 tax returns.

Eligible individuals claiming a 2021 Recovery Rebate Credit can view their Economic Impact Payment amounts in their online account to accurately claim the credit when they file.

Those who have an Online Account may:

• see the amounts of their Economic Impact Payments,
• access Child Tax Credit Update Portal for information regarding their advance Child Tax Credit payments,
• approve or reject authorization requests from their tax professional, and
• update their email address and opt-out/in for selected paper notice preferences.

Tax Withholding
The IRS has informed that individuals may want to consider adjusting their withholding if they owed taxes or received a large refund the previous year. Individuals can help avoid a tax bill or let individuals keep more money every payday by changing withholding. Some reasons for adjusting withholding might be marriage or divorce, childbirth or taking on a second job. Taxpayers may complete a new Form W-4, Employee’s Withholding Certificate, every year and when personal or financial situations change.

Further, individuals should make quarterly estimated tax payments if they receive a substantial amount of non-wage income like self-employment income, investment income, taxable Social Security benefits and in some instances, pension and annuity income. The due date for 2021 is January 18, 2022.

ITINs
An Individual Taxpayer Identification Number (ITIN) will expire on December 31, 2021 if it was not included on a U.S. federal tax return at least once for tax years 2018, 2019 and 2020. The IRS has reminded taxpayers that ITINs with middle digits 70 through 88 have expired. Further, ITINs with middle digits 90 through 99, IF assigned before 2013, have expired. Individuals are not required to renew again if they previously submitted a renewal application that was approved.

Direct Deposit
Individuals can access their refund faster than a paper check with the help of direct deposit. Taxpayers without a bank account can learn how to open an account at an FDIC-Insured bank or through the National Credit Union Locator Tool. Veterans can visit the Veterans Benefits Banking Program to access financial services at participating banks.

IRS Certified Volunteers
The IRS has encouraged people to join the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs to prepare a free tax return for eligible taxpayers.

For 2022, the Social Security wage cap will be $147,000, and Social Security and Supplemental Security Income (SSI) benefits will increase by 5.9 percent. These changes reflect cost-of-living adjustments to account for inflation.

For 2022, the Social Security wage cap will be $147,000, and Social Security and Supplemental Security Income (SSI) benefits will increase by 5.9 percent. These changes reflect cost-of-living adjustments to account for inflation.

Wage Cap for Social Security Tax
The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

• a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
• a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

• a 12.4 percent OASDI tax; and
• a 2.9 percent HI tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2022, the wage base is $147,000. Thus, OASDI tax applies only to the taxpayer’s first $147,000 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $147,000.

There is no wage cap for HI tax.

Maximum Social Security Tax for 2022
For workers who earn $147,000 or more in 2022:

• an employee will pay a total of $9,114 in social security tax ($147,000 x 6.2 percent);
• the employer will pay the same amount; and
• a self-employed worker will pay a total of $18,228 in social security tax ($147,000 x 12.4 percent).

Additional Medicare Tax
Higher-income workers may have to pay an additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

• $250,000 for married taxpayers who file a joint return;
• $125,000 for married taxpayers who file separate returns; and
• $200,000 for other taxpayers.

The annual wage cap does not affect the additional Medicare tax.

Benefit Increase for 2022
Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2022 by 5.9 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.

The IRS has allowed taxpayers to use electronic or digital signatures on certain paper forms they cannot file electronically.

The IRS has allowed taxpayers to use electronic or digital signatures on certain paper forms they cannot file electronically. The Service has balanced the e-signature option with critical security and protection needed against identity theft and fraud. The IRS will accept a wide range of electronic signatures. Acceptable electronic signature methods include:

• a typed name typed on a signature block;
• a scanned or digitized image of a handwritten signature that’s attached to an electronic record;
• a handwritten signature input onto an electronic signature pad;
• a handwritten signature, mark or command input on a display screen with a stylus device; and
• a signature created by a third-party software.

Moreover, the IRS will accept images of signatures (scanned or photographed) including common file types supported by Microsoft 365 such as tiff, jpg, jpeg, pdf, Microsoft Office Suite, or Zip.

The IRS has allowed taxpayers and representatives to use electronic or digital signatures on paper forms, which they cannot file using IRS e-file, including for example:

• Form 11-C, Occupational Tax and Registration Return for Wagering;
• Form 637, Application for Registration (For Certain Excise Tax Activities);
• Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return and other forms in the 706 series;
• Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;
• Form 730, Monthly Tax Return for Wagers;
• Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;
• Form 1120-C, U.S. Income Tax Return for Cooperative Associations and other forms in the 1120 series;
• Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; and
• Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.