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IRS Announces New Tax Brackets and Deductions for 2022

IRS Announces New Tax Brackets and Deductions for 2022
Ines Zemelman, EA
26 November 2021

The IRS has recently announced inflation adjustments for tax year 2022, affecting over 60 tax provisions including federal income tax brackets, standard deductions, and tax breaks.

The adjustments come into effect on January 1, 2022, for use by taxpayers when they prepare their 2022 federal tax returns in 2023.

What Caused It

Every year, the IRS makes adjustments to tax brackets, tax deductions, and other tax credits to account for cost-of-living changes. The higher-than-normal changes for 2022 were caused by higher inflation rates in 2021.

The Labor Department reported that U.S. consumer prices jumped 6.2% from a year ago in October, the biggest increase in more than three decades.

2022 Standard Deduction Amounts

The standard deduction amount will rise by $400 for individual filers and married couples filing separately, from $12,550 for 2021 to $12,950 for 2022. 

For married couples filing jointly and surviving spouses, the standard deduction will increase by $800, from $25,100 for 2021 to $25,900 for 2022. 

For heads of households, the standard deduction will increase by $600, from $18,800 for 2021 to $19,400 for 2022.

Taxpayers aged 65 or older or blind at the end of the tax year are allowed an additional deduction. The additional deduction will increase by $50, from $1,350 for 2021 to $1,400 for 2022. If you are both blind and above 65, you are entitled to the sum of the additional amounts for both age and blindness.

For an individual who can be claimed as a dependent by another taxpayer, the deduction is limited to the greater of $1,150, or their earned income plus $400. The total deduction cannot be greater than the regular standard deduction amount of $12,950.

2022 Federal Income Tax Rates and Tax Brackets

The federal marginal tax rates will remain the same for 2022: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. However, the level of taxable income that applies to each tax rate will increase.

For tax year 2022, the top tax rate (37%) will kick in at earned income over $539,900 for single filers and heads of household, $323,925 for married couples filing separately, and $647,850 for married couples filing jointly and surviving spouses.

Here's a breakdown of the changes to the tax rates and brackets for tax year 2022:

Tax rates and brackets for tax year 2022

Rate

Single

Married Filing Jointly, Surviving Spouse

Married Filing Separately

Head of Household

10%

$0 to $10,275

$0 to $20,550

$0 to $10,275

$0 to $14,650

12%

Over $10,275 to $41,775

Over $20,550 to $83,550

Over $10,275 to $41,775

Over $14,650 to $55,900

22%

Over $41,775 to $89,075

Over $83,550 to $178,150

Over $41,775 to $89,075

Over $55,900 to $89,050

24%

Over $89,075 to $170,050

Over $178,150 to $340,100

Over $89,075 to $170,050

Over $89,050 to $170,050

32%

Over $170,050 to $215,950

Over $340,100 to $431,900

Over $170,050 to $219,950

Over $170,050 to $215,950

35%

Over $215,950 to $539,900

Over $431,900 to $647,850

Over $215,950 to $323,925

Over $215,950 to $539,900

37%

Over $539,900

Over $647,850

Over $323,925

Over $539,900

2022 Personal Exemption

The personal exemption for 2022 remains at $0. The Tax Cuts and Jobs Act of 2017 eliminated the personal exemption until tax year 2025.

2022 Alternative Minimum Tax Exemption

The alternative minimum tax (AMT) is a tax imposed on taxpayers who earn above certain thresholds, estates, and trusts. 

Under the AMT, filers calculate their income tax twice—under ordinary tax rules and under the stricter AMT rules—and then pay the higher amount of the two. This ensures that the filer pays tax to the federal government regardless of the number of credits or deductions they claim.

For tax year 2022, the AMT exemption amount is $75,900 for single filers and $59,050 for married couples filing separately, and $118,100 for married couples filing jointly and surviving spouses. Trusts and estates are exempt up to $26,500.

2022 Kiddie Tax Rules

The kiddie tax is a tax rule that affects investment and unearned income for children under age 18 or dependent full-time students under age 24. This rule does not apply to individuals under these ages who are married and file joint tax returns. 

Unearned income that exceeds a certain threshold is taxed at the parent's income tax rate, instead of the child's lower rate. This rule was enacted to prevent parents from avoiding taxes by transferring stock to their children. 

Apart from investment dividends and interest, income that is taxed under this rule includes capital gains, rent, taxable scholarships, and inherited Individual Retirement Account (IRA) distributions.

The deduction amount for an individual who can be claimed as a dependent by another taxpayer is limited to the greater of $1,150, or their earned income plus $400. The total deduction cannot be greater than the regular standard deduction amount of $12,950.

For tax year 2022, the first $1,150 of your child's unearned income is untaxed. The next $1,150 is taxed at their marginal rate. Unearned income that exceeds $2,300 is then subject to your marginal rate.

2022 Long-Term Capital Gains Tax

The capital gains tax rates will remain the same for 2022: 0%, 15%, and 20%. However, the level of taxable income that applies to each tax rate will increase.

For tax year 2022, the maximum taxable income for the zero rate is $83,350 for married couples filing jointly and surviving spouses, $41,675 for married couples filing separately, $55,800 for heads of households, and $41,675 for single filers. The maximum zero rate for trusts and estates is $2,800.

2022 Qualified Business Income Deduction (Section 199A Deduction)

Section 199A of the Internal Revenue Code allows owners of sole proprietorships, S corporations, or partnerships to deduct up to 20% of their qualified business income.

For tax year 2022, the threshold and phase-in range is $340,100 to $440,100 for married couples filing jointly and surviving spouses and $170,050 to $220,050 for all other taxpayers.

2022 Federal Estate Tax Exemption

For tax year 2022, the basic exclusion amount for the estates of decedents who die in 2022 will increase by $360,000, from $11.7 million for 2021 to $12.06 million for 2022. If the estate is worth less than the exemption amount, no federal estate tax is owed.

2022 Gift Tax Exclusion

Here's some good news for the generous: The annual exclusion for gifts increases to $16,000 for 2022, up from $15,000 for 2021. Exclusion for gifts to spouses who are not U.S. citizens increases to $164,000 for 2022, up from $159,000 for 2021.

2022 Tax Deductions and Credits

Earned Income Tax Credit

For tax year 2022, the maximum Earned Income Tax Credit for single filers and married couples filing jointly is as follows:

  • $560 - No children
  • $3,733 - One qualifying child
  • $6,164 - Two qualifying children
  • $6935 - Three or more qualifying children

Child Tax Credit

It remains to be seen if the Expanded Child Tax Credit, which only currently applies to tax year 2021, will continue for another year. 

If Congress doesn't pass the Build Back Better Act, the Expanded Child Tax Credit would revert to its pre-2021 level: $2,000 per qualifying child. The tax credit begins to phase out at $200,000 for single filers and $400,000 for joint filers. Joint filers with an income of $440,000 receive no credit.

Lifetime Learning Credit

The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit has not been adjusted for tax year 2022. This tax credit phases out at $80,000 for single filers and $160,000 for joint filers.

Adoption Credit

For tax year 2022, the tax credit for an adoption of a child with special needs is $14,890. For other adoptions, filers may also claim up to $14,890 in qualified adoption expenses. The tax credit begins to phase out at $223,410 for all taxpayers.

Foreign Earned Income Exclusion

For tax year 2022, the foreign earned income exclusion increases to $112,000, up from $108,700 for 2021.

Commuter Benefits

For tax year 2022, the monthly limitation for the qualified transportation fringe benefit and qualified parking increases to $280.

Ines Zemelman, EA
Founder of TFX