On Nov. 10, 2021, the IRS announced inflation adjustments for 2022 affecting standard deductions, tax brackets, and more. The changes—effective when you file in 2023—are the result of higher inflation in 2021. These adjustments, which apply to more than 60 tax provisions, are made annually by the IRS to avoid bracket creep or the pushing of taxpayers into higher tax brackets due to inflation.
The changes apply to the 2022 tax year, for taxes filed in 2023. Changes for 2021, for taxes filed in 2022, were issued by the IRS last year. Here is how the inflation adjustments for 2022 affect taxpayers.
- Basic tax rates have not changed for 2022 although income levels (brackets) for each rate have.
- Standard deductions and about 60 other provisions have been adjusted for inflation to avoid bracket creep.
- The maximum Earned Income Tax Credit for 2022 will be $6,935 vs. $6,728 for tax year 2021 for taxpayers with three or more qualifying children.
- Basic exclusion for decedents who die in 2022 will be $12,060,000 vs. $11,700,000 for 2021.
- The annual gift exclusion for calendar year 2022 will be $16,000 vs. $15,000 for 2021.
The standard deduction—which is claimed by the vast majority of taxpayers—will increase by $800 for married couples filing jointly, going from $25,100 for 2021 to $25,900 for 2022. For single filers and married individuals who file separately, the standard deduction will rise by $400, from $12,550 to $12,950. For heads of households, the standard deduction will be $19,400 for tax year 2022, $600 more than this year.
Beginning in 2022, the additional standard deduction amount for anyone who is 65 or older—or blind—will be $1,400. The amount for 2021 is $1,350. If you are both 65+ and blind, you get two of those additional deductions.
The deduction for an individual who can be claimed as a dependent by another taxpayer is limited to the greater of $1,150, or the sum of $400 and the individual's earned income (but not more than the standard deduction of $12,950 for 2022).
Tax Rates Not Changed, But Brackets Increase
Marginal tax rates for 2022 will not change but the level of taxable income that applies to each rate is going up. The top rate of 37% will apply to income over $539,900 for individuals and heads of household and $647,850 for married couples who file jointly. The full list of tax rates and brackets for 2022 appears in the table below.
|Rate||Married Filing Jointly, Surviving Spouse||Married Filing Separately||Single||Head of Household|
|37%||Over $647,850||Over $323,925||Over $539,900||Over $539,900|
|35%||Over $431,900 to $647,850||Over $215,950 to $323,925||Over $215,950 to $539,900||Over $215,950 to $539,900|
|32%||Over $340,100 to $431,900||Over $170,050 to $219,950||Over $170,050 to $215,950||Over $170,050 to $215,950|
|24%||Over $178,150 to $340,100||Over $89,075 to $170,050||Over $89,075 to $170,050||Over $89,050 to $170,050|
|22%||Over $83,550 to $178,150||Over $41,775 to $89,075||Over $41,775 to $89,075||Over $55,900 to $89,050|
|12%||Over $20,550 to $83,550||Over $10,275 to $41,775||Over $10,275 to $41,775||Over $14,650 to $55,900|
|10%||$0 to $20,550||$0 to $10,275||$0 to $10,275||$0 to $14,650|
Maximum Long-Term Capital Gains
Capital gains rates are lower than your ordinary income tax rate and depend on your taxable income and filing status. For 2022, the maximum zero rate taxable income amount will be $83,350 for married couples filing jointly and for surviving spouses. The amount for heads of household is $55,800. For a married individual filing separately or any other individual it's $41,675. The maximum zero rate for an estate or trust is $2,800.
The taxable income amount for a married couple filing jointly above which the 20% long-term capital gains tax applies. The amount for an individual is $459,750.
The 15% capital gains rate will apply to adjusted net capital gains up to $517,200 for joint returns and surviving spouses, $488,500 for head of household, $459,750 for any other individual, and $13,700 for an estate or trust. Above these levels, the capital gains rate is $20%.
|Rate||Single, Income Over||Married Filing Jointly, Income Over||Heads of Household, Income Over|
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) requires high-income taxpayers to calculate their tax bill twice—once under the ordinary income tax system and again under the AMT. The taxpayer then pays the higher amount of the two. The AMT is levied at two rates: 26% and 28%.
The AMT taxable income exemption amount for 2022 is $75,900 for single taxpayers and $118,100 for married couples filing jointly. Married individuals filing separately are exempt up to $59,050 and estates and trusts are exempt up to $26,500. Exemptions phase out at 25 cents per dollar earned once Alternative Minimum Taxable Income (AMTI) reaches $539,900 for single filers and $1,079,800 for married taxpayers who file jointly.
The 28% AMT rate applies to excess AMTI of $206,100 for all taxpayers, except married couples filing separate returns ($103,050). Under these amounts, the rate is 26%.
The AMT exemption amount for a child to whom the "kiddie tax" applies may not exceed the total of the child's earned income plus $8,200.
2022 Earned Income Tax Credit (EITC)
The maximum Earned Income Tax Credit (EITC) in 2022 for single and married filing jointly filers is $560 if the filer has no children. The maximum credit is $3,733 for one qualifying child, $6,164 for two children, and $6,935 for three or more children.
2022 Child Tax Credit
Unless Congress takes action, the Child Tax Credit in 2022 will revert back to $2,000 per qualifying child, subject to phaseouts starting at income of $400,000 for joint filers and $200,000 for single taxpayers. At $440,000, joint filers receive no credit. The refundable portion of the Child Tax Credit adjusted for inflation will increase from $1,400 to $1,500 in 2022.
Maximum Exclusion for Gifts
For 2022, the first $16,000 of gifts to any person are excluded from tax. This is up $1,000 from 2021. Gifts to spouses who are not U.S. citizens is increased to $164,000 from $159,000.
What Is Bracket Creep?
Bracket creep happens when inflation pushes income into a higher tax bracket. This results in an increase in income taxes but no increase in purchasing power.
What's the Contribution Limit on Cafeteria Plans for 2022?
For taxable years beginning in 2022, there will be a $2,850 limit on voluntary employee salary reductions for contributions to health flexible spending arrangements, up $100 from 2021. If the plan permits the carryover of unused amounts, the maximum carryover amount is $570.
What Is the Standard Deduction for Tax Year 2022?
The standard deduction for married couples goes up to $25,900 for tax year 2022. Single filers and married individuals who file separately will get a $12,950 standard deduction, and heads of households will see a rise of $600 to $19,400.
Internal Revenue Service. "IRS provides tax inflation adjustments for tax year 2022."
Internal Revenue Service. "26 CFR 601.602: Tax forms and instructions." Page 14.
Internal Revenue Service. "26 CFR 601.602: Tax forms and instructions." Pages 8&9.
Internal Revenue Service. "26 CFR 601.602: Tax forms and instructions." Page 13.
Internal Revenue Service. "26 CFR 601.602: Tax forms and instructions." Page 10.
Internal Revenue Service. "26 CFR 601.602: Tax forms and instructions." Page 9.
Internal Revenue Service. "26 CFR 601.602: Tax forms and instructions." Page 21.