The Internal Revenue Service has announced annual inflation adjustments for the fiscal year 2022, along with the standard deduction and tax brackets.
In a press release this week, the agency said that the amendments take into consideration the increase in inflation this year and will apply to tax returns of the fiscal year 2022 that need to be filed in 2023.
Increase in the Standard Deduction Amount
The standard deduction, claimed by maximum taxpayers, will be raised to $25,900, and the additional deduction of $800 for married couples filing jointly for the fiscal year 2022.
The standard deduction will be raised to $12,950 which is up by $400 for single taxpayers and married individuals filing separately. The deduction amount for heads of households will increase to $19,400, which is up by $600.
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In addition to that, the income limits for all income brackets will be increased as mentioned below:
- 10% for incomes above $10,275 and $20,550 for married couples filing jointly
- 12% for incomes above $10,275 and $20,550 for married couples filing jointly
- 22% for incomes above $41,775 and $83,550 for married couples filing jointly
- 24% for incomes above $89,075 and $178,150 for married couples filing jointly
- 32% for incomes above $170,050 and $340,100 for married couples filing jointly
- 35%, for incomes above $215,950 and $431,900 for married couples filing jointly
- 37% for incomes above $539,900 and $647,850 for married couples filing jointly
These numbers are adjusted by the IRS yearly to consider changes in the cost of living based on formulas set by federal law. The adjustments are dependent on average inflation in 12 months ending in August.
Inflation to Continue to Rise by This Fall
Over the spring and summer, inflation has increased and will continue to rise this fall/autumn. According to the Labor Department’s Consumer Price Index (CPI), consumer prices rose 6.2 percent in October year over year, turning up the fastest rise in a year in consumer inflation since 1990.
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Earned Income Tax Credit and Another Certain Exemption Amount to Be Adjusted for Inflation
The amount for a tax credit for the Earned Income Tax Credit (EITC), tax exemption amount for estates and gifts, and the threshold on transportation benefits will also be adjusted considering inflation.
The Democrats’ tax plan that is running through Congress consists of an increase in tax that may result in reducing the top income bracket limit and lead to an increase in the top-bracket tax rate if executed.
