The past year was filled with news of potential tax law changes, most of which did not transpire. With that in mind, we wanted to provide you with a few tax reminders as you start the new year.
Changes to Annual Gift Tax Exclusion Amount
The Internal Revenue Service has announced that the annual gift tax exclusion amount for 2022 will be $16,000 (an increase from $15,000) due to inflation. For married couples, this means that they can give $32,000 per year, per recipient. When making gifts at or under the annual gift exclusion, the gifts do not need to be reported. This means that “exclusion gifts” can be made without paying tax and without reducing your lifetime exemption. If you make a gift OVER the exclusion amount, you need to file a GIFT TAX RETURN, so that the transfer is officially documented and tracked. At the time of your death, all lifetime transfers OVER the annual exclusion amount are added together with the assets transferred at the time of your death to determine whether you have used or exceeded your lifetime exemption.
Changes to Federal Lifetime Estate & Transfer Tax Exemption Amount
Also adjusted for inflation is the 2022 Federal Estate & Transfer Tax exemption, increased to $12.06 million per individual for 2022 deaths, up from $11.7 million in 2021. This is the Federal “lifetime exemption” amount referenced above. An individual dying in 2022 can pass on $12.06 million, not subject to any other applicable deduction. This is also the amount that can be insulated from Generation Skipping Tax. But keep in mind that this $12 million estate tax exemption will expire on January 1, 2026. The 2017 Tax Cuts and Jobs Act made only temporary changes for individual taxpayers. The legislation will revert to the 2017 limit of $5.49 million, indexed for inflation in 2026.
Changes to Connecticut Estate & Transfer Tax Exemption Amount
On January 1, 2022, Connecticut’s Estate and Gift Tax limit increased from $7.1 million to $9.1 million. Next year (in 2023) the Connecticut limit will MATCH the Federal limit then in effect. Assuming no substantive tax legislation is passed in the interim, this means that between 2023 and 2025, Connecticut will not assess tax on any estates under $12 million. Connecticut, however, requires that an Estate Tax Return be filed for EVERY Decedent, regardless of whether any tax is actually owed. A Federal Estate Tax Return is required only if the Decedent owes tax. This is because Connecticut charges a Statutory Fee based on the value of the Decedent’s Estate. (Referring to this assessment as a “fee” rather than a “tax” causes all manner of confusion.) The current maximum Statutory Fee is $40,000 for estates over $8,877,000. It is anticipated that this fee will increase in 2022 and then again in 2023.
