Annual Gift Tax Exclusion for 2022 Increases to $16,000.00

Due to surging inflation, the  Internal Revenue Service (IRS) announced that the annual exclusion for 2022 will be $16,000, up from the current $15,000. 

The rate of inflation hit a 31-year high in October.  Shortly thereafter, the IRS announced adjustments to certain inflation-indexed tax provisions for returns filed in 2023.

The inflation adjustments for tax years 2021 and 2022 inform taxpayers what they might expect going forward. In the event that inflation isn’t temporary, the adjustment determinations now will be all the more important come tax time in 2023. The other changes follow:

New standard deduction, tax brackets, gift tax and EITC

• The standard deduction rises to $25,100 for married couples filing jointly in their 2022 returns. That’s a $300 increase. It rises to $25,900 for 2023 returns, an $800 rise.

• For single filers and married individuals filing separately, the standard deduction in 2021 returns climbs to $12,550, a $150 increase. The following year, the deduction increases to $12,950, a $400 increase.

• The income levels applying to each tax bracket are increasing up and down the income scale. For example, in 2021 returns, the top 37% rate applies to individuals making $523,600, or $628,300 for married couples filing jointly. In 2022 returns, the richest households face the top rate for incomes above $539,900 or $647,850 for married couples filing jointly.

• The annual exclusion on the gift tax rises for the first time in several years. From 2018 to 2021, $15,000 was the threshold before taxes applied on gifts, according to the IRS. It rises to $16,000 in 2022, with returns filed in 2023.

• The Earned Income Tax Credit, a credit for low- and moderate-income households, also increases. For example, the maximum credit for 2021 returns of qualifying households with three or more eligible children is $6,728. The following year, households with three or more kids will receive $6,935, the IRS said. The American Rescue Plan passed in March expanded the EITC’s rules, qualifications and potential payouts, particularly for workers without children.

Promissory Note Executed by Nursing Home Resident’s Daughter Is Not Illegal Third-Party Guarantee

The efforts of nursing homes to create and enforce filial responsibility, i.e., hold children financially responsible for a parent's long term care, even where state legislators have not enacted such legislation, is a frequent topic of articles on this blog:

• Filial Responsibility- Resident’s Son Not Liable for Breach of Contract Because He Did Not Cause His Mother to Be Ineligible for Medicaid;

• Judge Can Not Impose an ‘Unusual’ Condition on a Reversal of a Default Judgment in a Nursing Home Breach of Contract Lawsuit;

• Tortious Interference With Contractual Relationship Claim Most Recent Possible Remedy Nursing Homes can Employ Against Children of Nursing Home Residents;

• Conservator Owes Duty to Nursing Home to Timely Apply for Medicaid;

• Agent Under Power of Attorney Liable for Damages to Nursing Home for Breach of Contract;

• Conveyance to Son Was Fraudulent, But His Siblings May Also Be Liable Under Filial Support Law;

• Nursing Home May Sue Resident's Daughter for Breach of Contract.

Another recent example comes courtesy of a Kentucky appeals court which held that a promissory note executed by a nursing home resident’s daughter, agreeing to pay the nursing home for the resident’s outstanding expenses, is not illegal because there was no evidence her mother’s stay in the nursing home was conditioned on her signing the note. Roberts v. Mt. Washington Health Care, LLC (Ky. Ct. App., No. 2020-CA-1190-MR, Oct. 29, 2021).  Federal law provides that “a nursing facility must . . . not require a third party guarantee of payment to the facility as a condition of admission (or expedited admission) to, or continued stay in, the facility...” 42 U.S.C. § 1396r(c)(5)(A)(ii). 

Erma Basham entered a nursing home in 2018. She applied for Medicaid in 2019 and was approved, but she owed $34,742.26 in expenses for her care before her Medicaid application was approved. Ms. Basham’s daughter, Christy Roberts, executed a promissory note, agreeing to pay the nursing home monthly to pay down Ms. Basham’s bill. Ms. Roberts made one payment and defaulted on the note.

The nursing home sued Ms. Roberts. The trial court found Ms. Roberts had executed a valid promissory note and entered judgment in favor of the nursing home. Ms. Roberts appealed, arguing that the promissory note was illegal because under federal law, the nursing home cannot require a third-party guarantee of payment as a condition of admission or continued stay in the facility.

The Kentucky Court of Appeals affirmed in part, holding that the promissory note is not illegal. According to the court, there was “no testimony or other evidence of record apart from [Ms.] Roberts’ unsupported assertions indicating that her mother’s admission or continued stay at the appellee’s facility was conditioned upon [Ms.] Roberts executing the February 12, 2019 promissory note.” 

The court did find that the interest charged Ms. Roberts was too high and remanded the case to the trial court to enter a lower interest rate.