IRS Issues Inflation Adjustments for 2022 Returns

The Internal Revenue Service has made the announcement of annual inflation adjustments for the fiscal year 2022, which means the new tax-rate schedules and tax tables and inflation adjustments for multiple tax breaks.

Maximum figures are higher in comparison to recent years due to higher inflation. These changes, for the fiscal year starting 1st January 2022, are the ones that will be used for the preparation of 2022 tax returns in 2023.

If with changes that have been made for the tax year 2022, you don’t feel any considerable changes in your income or life, by tying the knot or starting a gig job, for instance, you can take into account the changes to assess your tax liability for the fiscal year 2022.

If you’re anticipating some significant amendments, ensure to check your tax withholding or/and make payments for quarterly assessed tax. 

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Every single detail regarding changes that have been made in tax rates is mentioned in Revenue Procedure 2021-45. We have covered all the key points in this article and along with that it also covers the new higher retirement accounts ceiling cap for 2022. 

2022 Tax Bracket and Tax Rates

In 2022, there are seven tax rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Here’s how they apply as per filing status:

Individual Taxpayers (Single) Tax Rates 2022

Taxable Income Range Rates Applicable
Up to $10,275 10% of taxable income
Above $10,275 and up to $41,775 $1,027.50 + 12% of the amount above $10,275
Above $41,775 and up to $89,075 $4,807.50 + 22% of the amount over $41,775
Above $89,075 and up to $170,050 $15,213.50 + 24% of the amount over $89,075
Above $170,050 and up to $215,950 $34,647.50 + 32% of the amount over $170.050
Above $215,950 and up to $539,900 $49,335.50 + 35% of the amount over $215,950
Above $539,900 $162,718 + 37% of the amount over $539,900

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Married Individuals Filing Joint Returns and Surviving Spouses (Joint) Tax Rates 2022

Taxable Income Range Rates Applicable
Up to $20,550 10% of taxable income
Above $20,550 and up to $83,550 $2,055 + 12% of the amount above $20,550
Above $83,550 and up to $178,150 $9,615 + 22% of the amount over $83,550
Above $178,150 and up to $340,100 $30,427 + 24% of the amount over $178,150
Above $340,100 and up to $431,900 $69,295 + 32% of the amount over $340,100
Above $431,900 and up to $647,850 $98,671 + 35% of the amount over $431,900
Above $647,850 $174,253.5 + 37% of the amount over $647,850

Married Filing Separately Tax Rates 2022

Taxable Income Range Rates Applicable
Up to $10,275 10% of taxable income
Above $10,275 and up to $41,775 $1,027.50 + 12% of the amount above $10,275
Above $41,775 and up to $89,075 $4,807.50 + 22% of the amount over $41,775
Above $89,075 and up to $170,050 $15,213.50 + 24% of the amount over $89,075
Above $170,050 and up to $215,950 $34,647.50 + 32% of the amount over $170.050
Above $215,950 and up to $323,925 $49,335.50 + 35% of the amount over $215,950
Above $323,925 $87,126.75 + 37% of the amount over $323,925

Head of Household Tax Rates 2022

Taxable Income Range Rates Applicable
Up to $14,650 10% of taxable income
Above $14,650 and up to $55,900 $1,465 + 12% of the amount above $14,650
Above $55,900 and up to $89,050 $6,415 + 22% of the amount over $55,900
Above $89,050 and up to $170,050 $13,708 + 24% of the amount over $89,050
Above $170,050 and up to $215,950 $33,148 + 32% of the amount over $170.050
Above $215,950 and up to $539,900 $47,836 + 35% of the amount over $215,950
Above $539,900 $161,218.50 + 37% of the amount over $539,900

Trusts and Estates Tax Rates 2022

Taxable Income Range Rates Applicable
Up to $2,750 10% of taxable income
Above $2,750 and up to $9,850 $275 + 24% of the amount above $2,750
Above $9,850 and up to $13,450 $1,979 + 24% of the amount over $9,850
Above $13,450 $3,239 + 37% of the amount over $13,450

2022 Standard Deduction Amount

For individuals and married couples filing separately, the standard deduction amounts will be increased to $12,950, for heads of household- $19,400 and for married couples filing jointly and surviving spouses- $25,900.

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For the aged or the blind, the standard deduction amount is $1,400 for 2022 and for unmarried aged/blind taxpayers, the additional standard deduction amount increased to $1,750.

For an individual who may be claimed as a dependent (including “kiddies”) by another taxpayer, the standard deduction amount for 2022 cannot exceed the maximum of $1,150 or the sum of $400 and the individual’s earned income (not to surpass the normal standard deduction amount).

Personal Exemption Amount

In 2022 the personal exemption amount remains zero. The Tax Cuts and Jobs Act dismissed the personal exemption till the fiscal year 2025, neutralizing the change with an enhanced Child Tax Credit for maximum taxpayers and increasing the standard deduction amount by nearly two times. 

Alternative Minimum Tax Exemption Amounts

Have a look at the alternative minimum tax (AMT) exemption amounts for the next year, adjusted for inflation:

Alternative Minimum Tax Exemption Amounts 2022

Filing Status Exemption Amount
Individual $75,900
Married Filing Jointly & Surviving Spouses $118,100
Married Filing Separately $59,050
Trust & Estates $26,500

Kiddie Tax

A child’s unearned income is taxable at the parent’s marginal tax rate; that tax mandate has been named the “kiddie tax.” The kiddie tax applies to unearned income for children below the age of 19 and college students below the age of 24.

Income from sources other than wages and salary is treated as unearned income. For instance, dividends and interest, inherited Individual Retirement Account distributions and taxable scholarships come under unearned income.

The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the higher of (1) $1,150 or (2) the sum of $400 and the individual’s earned income (not to surpass the normal standard deduction amount) for 2022. 

If your child’s sole income comes from unearned income, then you may opt to include that income on your tax return instead of filing a separate return for your child.

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For 2022, this is permitted if the gross income of your child is over $1,150 but below $11,500. But if your child files a separate return, the tax amount may be lesser.

Capital Gains Tax

For 2022, Capital gains tax rates remain the same, but the brackets for the rates will change. Here’s a grouping of long-term capital gains and eligible dividends rates for assesses based on their taxable income:

Capital Gains Tax Rates 2022

Filing Status 0% Rate 15% Rate 20% Rate Amount
Married Filing Jointly & Surviving Spouses Up to $83,350 $83,351 and $517,200 Over $517,200
Married Filing Separately Up to $41,675 $41,676 and $258,600 Over $258,600
Heads of Households Up to $55,800 $55,801 and $488,500 Over $488,500
Individual Taxpayers Up to $41,675 $41,676 and $459,750 Over $459,750
Trust & Estates Up to $2,800 $2,801 and $13,700 Over $13,700

Section 199A Deduction

Being a part of the Tax Cuts & Jobs Act, sole proprietors and owners of pass-through businesses are entitled to a deduction of up to 20% for reducing their tax rate for eligible business income. The limit and phase-in amount for the deduction for 2022 are mentioned below.

Section 199A Deduction 

Filing Status Threshold Amount Phased-in Amount
Married Filing Jointly & Surviving Spouses $340,100 $440,100
Married Filing Separately $170,050 $220,050
All Other Taxpayers $170,050 $220,050

Federal Estate Tax Exemption

For people dying in 2022, the federal estate tax exemption will jump to $12.06 million per individual, or for a married couple amount is $24.12 million.

Gift Tax Exclusion

In 2022, the annual exclusion for federal gift tax will increase to $16,000, higher than $15,000 in last year.

Popular Tax Credits and Deductions 2022

Earned Income Tax Credit. The highest earned income tax credit amount is $6,935 for eligible assesses having three or more eligible children for the tax year 2022. Phaseouts apply.

Child Tax Credit. For 2022, the Child Tax Credit would be $2,000 per child, based on income phaseouts starting at $400,000 for joint filers and $200,000 for singles. No credit is available for Joint filers with an income of $440,000.

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Adoption credit. For the adoption of a child with special needs, the tax credit is $14,890 for 2022. The highest allowable credit for other adoptions is the amount of eligible adoption expenditure up to $14,890.

The credit starts to phase out for assesses with modified adjusted gross income (MAGI) more than $223,410, and it’s fully phased out at $263,410 or more.

Lifetime Learning Credit. For 2022, For single taxpayers with MAGI of more than $80,000, the education tax credit is phased out, and for joint filers with $160,000.

Student Loan Interest Deduction. The deduction of $2,500 for interest paid on student loans starts to phase out when modified adjusted gross income strikes $70,000 ($145,000 for joint returns) and is fully phased out when MAGI strikes $85,000 and for joint returns $175,000.

Elementary and Secondary School Teachers Expenses. The eligible teachers can get $300 for expenses paid or incurred for books, supplies (with some exceptions), computer equipment (along with related software and services) and other equipment, and supplementary materials consumed in the classroom. 

Commuter benefits. For 2022, the limit of monthly contributions to eligible parking and transit accounts is $280. You get a double-dip If you pay to park and ride.

Flexible Savings Accounts. For 2022, the dollar limit contributions to a flexible savings account are $2,850. The carryover limit is $570 for plans that permit carryovers.

There are no PEASE limits on itemized deductions. 

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