IRS Inflation Adjustments for Tax Year 2022

Some Tax Provisions Increase Annually To Keep Up With Inflation

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The Internal Revenue Service (IRS) tweaks certain tax provisions annually to keep pace with inflation. The idea is to prevent taxpayers from losing out on various tax breaks because they might be earning a bit more than they did the year before, based on inflation. Tax thresholds should, ideally, keep pace with the economy.  

The IRS typically announces inflation adjustments for the upcoming tax year every November. On Nov. 10, 2021, the IRS announced more than 60 tax limits and provisions for the 2022 tax year (the return you file in 2023). Knowing what they are and how they work can help you plan your tax strategies and spending in 2022.

Key Takeaways

  • The IRS adjusts numerous tax provisions annually to keep pace with the growing effect of inflation.
  • The effects of inflation adjustments impact qualifying thresholds of income for various tax breaks, as well as the amount of the standard deduction and certain tax credits.
  • Tax rates do not change annually—unless new tax law changes come into effect—but the income brackets they apply to do, so it’s important to know where your income falls each year.

2022 Tax Brackets

The U.S. tax system is progressive, so you pay a higher percentage in taxes as you earn more. If you earn $30,000 one year, but $100,000 another year, you’ll pay different amounts in taxes. The tax system is also based on marginal tax rates and brackets. This means that you won’t pay 24% on all your income if you’re in the 24% tax bracket. You’ll only pay this rate on the portion of your income that falls into the parameters for that 24% bracket. You’ll pay 10%, 12%, and 22% on the rest of your income below that income threshold. Inflation adjustments don’t affect the tax rates (the percentage you pay). They only change the income brackets to which the percentages apply. 

2022 Tax Rates and Brackets for Single and Married Filing Separately

The below table shows the income tax brackets for each tax rate for the tax year 2022 for single filers and for those who are married but filing separate returns.

Tax Rate Income Bracket
10% $0 to $10,275
12% $10,276 to $41,775
22% $41,776 to $89,075
24% $89,076 to $170,050
32% $170,051 to $215,950
35% $215,951 to $539,900
37% $539,901 or more

2022 Tax Rates and Brackets for Heads of Household

Those who qualify as head of household can earn a little more than single filers before moving into the next tax bracket, at least at lower income levels.

Tax Rate Income Bracket
10% $0 to $14,650
12% $114,651 to $55,900
22% $55,901 to $89,050
24% $89,051 to $170,050
32% $170,051 to $215,950
35% $215,951 to $539,900
37% $539,901 or more

2022 Tax Rates and Brackets for Married Filing Jointly

The income spans are the most generous for taxpayers who are married and file joint returns. They're double what they are for single filers so they can accommodate two potential earners.

Tax Rate Income Bracket
10% $0 to $20,550
12% $20,551 to $83,550
22% $83,551 to $178,550
24% $178,551 to $340,100
32% $340,101 to $431,900
35% $431,901 to $647,850
37% $647,851 or more

2022 Standard Deductions

The standard deduction is an amount you can subtract from your overall gross income so you only pay income tax on the balance. These also differ by filing status. Below are the standard deduction rates for tax year 2022, which apply to the tax return you’ll file in 2023.

Filing Status Standard Deduction
Single or Married Filing Separately $12,950
Head of Household $19,400
Married Filing Jointly $25,900

2022 Capital Gains Tax Rates and Income

Capital gains tax can come due when you sell an asset or investment for more than you paid for it. The difference can be taxed at more favorable rates than ordinary income tax brackets, depending on how long you owned the asset. Gains are taxed at ordinary tax rates along with the rest of your income if you owned it for one year or less. Long-term capital gains rates apply to income from assets you held for more than one year.

Single

Income Threshold Tax Rate
$41,675 or less 0%
$41,675 to $459,750 15%
$459,750 or more 20%

Head of Household

Income Threshold Tax Rate
$55,800 or less 0%
$55,800 to $488,500 15%
$488,500 or more 20%

Married Filing Jointly

Income Threshold Tax Rate
$83,350 or less 0%
$83,350 up to $517,200 15%
$517,200 or more 20%

Those taxpayers who are married filing separately have the same income threshold as single filers for the 0% to 15% capital gains tax rate—$41,675. However, they have a different maximum income threshold of $258,600 for the 15% tax rate. Income that exceeds that amount triggers the 20% capital gains tax rate.

The 2022 Alternative Minimum Tax

The alternative minimum tax (AMT) is a provision that prevents high earners from claiming so many tax breaks that they reduce their income to the point where they pay negligible income tax on their earnings.

You must calculate your income tax twice if you earn over a certain income threshold: once according to the usual rules, then again using AMT rules. The AMT adds back certain deductions and income exclusions that you might claim under the usual rules to bring your taxable income down. You would then pay whichever method results in a higher tax. 

The AMT excludes income up to certain thresholds based on your filing status. For tax year 2022, you need only calculate the AMT if you earn more than $75,900 as a single filer; it begins to phase out at $539,900. For married taxpayers filing jointly, you’ll need to calculate the AMT if you earn $118,100 or more; it begins to phase out at $1,079,800.

Tax Credits and Other Increases for 2022

Deductions, such as the standard deduction, subtract from your income to arrive at the amount that's taxed, but tax credits are better. They subtract directly from what you owe the IRS. Inflation adjustments apply to many of these, too, as well as to some other tax perks.

Earned Income Tax Credit 

The maximum earned income tax credit for those who meet income requirements and who have three or more dependent children increases to $6,935 in 2022. It goes up to $6,164 if you have two children, to $3,733 if you have one child, and to $560 if you have none.

The Child Tax Credit

The amount of the child tax credit isn’t adjusted for inflation, but the portion of the credit that can be claimed as a tax refund is. For 2022, that amount is $1,500. 

Savings Limits 

Inflation-adjusted limits also apply to the amounts that you can save to various retirement plans and other advantageous savings plans, and exclude those contributions from taxation.

In 2022, you can contribute up to $2,850 to a health flexible spending arrangement (also known as flexible spending accounts, or FSAs). 

The limit for contributions to 401(k) plans, 403(b) plans, 457 plans, and thrift savings plans increases to $20,500 in 2022. Contributions to SIMPLE retirement accounts increase to $14,000. Contribution limits to Roth and traditional IRAs haven’t changed.

Estate and Gift Taxes

Very large estates must pay a federal estate tax on the portion of their values over certain thresholds, and these thresholds are also indexed for inflation. The first $12.06 million is tax-free in 2022.

The federal gift tax applies to gifts you make to individuals (not to charities) over a certain amount each year. This amount is referred to as the annual exclusion, and it’s per person per year. It’s been set at $15,000 for several years up through 2021, but it is $16,000 in 2022.

Frequently Asked Questions (FAQs)

What causes inflation?

Inflation is the increase in the prices of goods and services in an economy. It’s measured by looking at the increases in prices in one year from what they were the year before. As inflation increases, you can buy fewer goods and services with the same amount of money. It can be caused by increased demand and decreased supply, or when the cost of producing goods and services increases, resulting in higher prices.

What is the inflation adjustment for Social Security?

As with tax brackets, credits, deductions, and more, Social Security benefits also keep pace with inflation through cost-of-living adjustments (COLA). Social Security and Supplemental Security Income (SSI) benefits that are payable as of January 2022 will see a 5.9% COLA increase.

How do tax brackets work?

Tax brackets are simply measurements of taxable income. Different tax rates apply to each bracket. They don’t apply to all your income, but only to what’s left after you claim your standard deduction or your itemized deductions. For example, if you earned $40,000 in 2022, you’d fall into the 12% tax bracket. You’d pay 10% on your first $10,275, and then 12% on the rest of your income up to $40,000 ($29,725).

Correction - Jan. 26, 2022: This article has been updated to correct the standard deduction for married taxpayers who file jointly for the tax year 2022.

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