With consumer prices skyrocketing in the past few years, the IRS has made some changes to the income thresholds for federal tax brackets.
This is following the increase in inflation for 2022. You can learn all about IRS-issued inflation adjustments for 2022 returns down below.
Inflation Adjustments by IRS
According to the IRS, the newly announced tax changes will be applied to tax returns filed in 2023. Additionally, more than 60 tax provisions have been altered. However, the 2017 Tax Cuts and Jobs Act rates will remain the same as announced by the IRS.
The inflation adjustments for various taxpayers are mentioned down below.
- Married Couples- Couples who opt for filing taxes together for the tax year 2022 will face a standard deduction of $25,900. This is an increase of $800 from the previous year. On the other hand, the standard deduction for couples who file their taxes separately is increased to $12,950. This is a $400 increase from the 2021 tax year.
- Single Taxpayers- Single taxpayers will face the same standard deduction as married couples who file their taxes separately, i.e $400 from last year.
- Heads of Households- The standard deduction for them will be $19,400, an increase of $600.
Marginal Rate Increases
The tax rate for various groups of individuals will be increasing as mentioned down below.
Individuals with an income greater than $539,900 will pay a tax rate of 37% if they file their taxes separately. The tax rate will be 35% for an income over $215,950, 32% for income greater than $170,050 and 24% for an income more than $89,075.
The tax rate is further reduced to 22% for incomes more than $41,775 and 12% for incomes greater than $10,275. The lowest tax rate is 10% for single individuals with an income that is equal to or less than $10,275.
Married couples who file taxes together will pay 37% taxes if their income is greater than $647,850. It is 35% for an income over $431,900, 32% for incomes over $340,100 and 24% for incomes over $178,150.
It is 22% for incomes over $83,550 and 12% for incomes over $20,550. The tax rate is further decreased to 10% for married couples with incomes of $20,550.
Additional Updates by IRS
There will be no limits on itemized deductions in 2022.
The 2022 Alternative Minimum Tax exemption amount is $75,900 and stops at $539,900 for single taxpayers. It is $118,100 for married couples filing taxes together and their exemption phases out at $1,079,800. In contrast, the exemption amount in 2021 was $73600 for singles and $114600 for couples.
The maximum Earned Income Tax Credit for 2022 is $6,935 for taxpayers with three or more qualifying children. It has increased from $6,728 for the tax year 2021.
There is a $280 increase in monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking.
The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements has also gone up to $2,850. Cafeteria permits that allow users to carry over unused amounts max out at $570 in 2022.
Participants with self-only coverage in a Medical Savings Account must have a plan with an annual deductible that is $2,450 or more. However, it can’t be more than $3,700. The out-of-pocket expense amount maxes out at $4,950 for self-only coverage.
And family coverage will have an annual deductible that is not less than $4,950. But, the amount cannot be more than $7,400. As for the out-of-pocket expense limit for the family coverage, it is increased to 9,050.
“The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020.
The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income more than $80,000 ($160,000 for joint returns),” as stated by the updated inflation adjustments.
The foreign earned income exclusion is $112,000 for the tax year 2022.
The basic exclusion amount is $12,060,000 for estates of descendants who pass away during 2022. It was $11,700,000 in 2021.
The updated annual exclusion for gifts is $16,000.
The maximum credit allowed for adoptions is also changed. It now equals the number of qualified adoption expenses up to $14,890.