This document, 1 prepared by the staff of the Joint Committee on Taxation (“Joint Committee staff”), provides a summary of the present-law Federal tax system as in effect for 2022.
The current Federal tax system has four main elements: (1) an income tax on individuals, estates, trusts, and corporations (which consists of both a “regular” income tax and, in the case of
individuals, an alternative minimum tax);2 (2) payroll taxes on wages (and corresponding taxes on self-employment income) to finance certain social insurance programs; (3) estate, gift, and
generation-skipping transfer taxes; and (4) excise taxes on selected goods and services. This document provides a broad overview of each of these elements.
Several aspects of the Internal Revenue Code of 1986 (the “Code”), are subject to change over time. For example, some dollar amounts and income thresholds are indexed for inflation, including the standard deduction, tax rate brackets, and the annual gift tax exclusion. In general, the Internal Revenue Service (“IRS”) adjusts these numbers annually and publishes the inflation adjusted amounts in effect for taxable years beginning in a calendar year before the beginning of such calendar year. Where applicable, this document generally includes dollar amounts in effect for 20223 and notes whether dollar amounts are indexed for inflation. 4
In addition, many provisions in the Federal tax laws are temporary or have parameters that change over time according to the statute. For simplicity, this document describes the Federal tax laws in effect for 2022, as of the date of publication, and generally does not include references to provisions as they may be in effect for future years or to termination dates for expiring provisions.
I. SUMMARY OF THE PRESENT-LAW FEDERAL TAX SYSTEM
A. Individual Income Tax
In general The worldwide taxable income of a United States citizen or resident alien generally is subject to the U.S. individual income tax.6 Taxable income equals the taxpayer’s total income
less certain exclusions, exemptions, and deductions. Income tax liability is determined by applying graduated tax rates to a taxpayer’s taxable income. A taxpayer may face additional
liability if the alternative minimum tax applies. Income tax liability may be reduced by applicable tax credits.
The taxable income of estates and trusts is generally calculated in the same manner as the taxable income of individuals.7
Under the Code, gross income means “income from whatever source derived” except for certain items specifically exempt or excluded by statute.8 Sources of income include 9 compensation for services, interest, dividends, capital gains, rents, royalties, annuities, income
from life insurance and endowment contracts (other than certain death benefits), pensions, gross profits from a trade or business, income in respect of a decedent, income distributed from trusts
or estates, and income allocated from S corporations or partnerships.10 Statutory exclusions from gross income 11 include death benefits payable under a life insurance contract, interest on
certain State and local bonds, the receipt of property by gift or inheritance, certain disaster relief payments, certain benefits and payments to members of qualified volunteer emergency response
organizations, as well as employer-provided health insurance and certain other benefits.
Contributions to qualified retirement plans, along with any attributable earnings, generally are included in gross income when distributed.
Adjusted Gross Income
An individual’s adjusted gross income (“AGI”) is determined by subtracting certain “above-the-line” deductions from gross income. These deductions 13 include trade or business expenses or losses, losses from the sale or exchange of property, contributions to a qualified retirement plan by a self-employed individual, contributions to certain individual retirement accounts (“IRAs”), certain moving expenses for members of the Armed Forces, and certain expenses of elementary and secondary school teachers.
The standard deduction is the sum of the basic standard deduction and the additional standard deduction. The amount of the basic standard deduction depends on a taxpayer’s filing status. For 2022, the amount of the standard deduction is $12,950 for a single individual and for a married individual filing separately, $19,400 for a head of household, and $25,900 for married individuals filing jointly and for a surviving spouse. The additional standard deduction is allowed with respect to any individual who is elderly (i.e., above age 64) and/or blind.16 The amounts of the basic standard deduction and the additional standard deductions are indexed
annually for inflation.
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