2022 Tax Changes: IRS Issues Inflation Adjustments
Each year, the Internal Revenue Service (IRS) announces inflation adjustments for dozens of tax provisions based on the current cost of living. On November 20, 2021, the IRS announced changes to over 60 tax provisions for the tax year 2022. For most individuals, these changes affect their tax returns filed in 2023.
2022 Tax Changes Which Will Affect Your Tax Return in 2023
Many IRS inflation adjustments applicable to 2022 tax returns could significantly impact individual income tax filers. Inflation adjustments impact tax brackets, deductions, estate tax, standard deductions, retirement contributions, and many other tax provisions. Below is a summary of a few changes to new tax laws that impact the average taxpayer for the tax year 2022.
Related: Do I have to Issue a 1099 to Contractors Paid Through 3rd-Party Platforms?
Changes in Tax Brackets and Tax Rates for 2022
The IRS is not changing the tax brackets set by the Tax Cuts and Jobs Act. The lowest tax bracket remains at 10%, and the highest tax bracket remains at 37%. However, the income thresholds for all tax brackets are increasing in 2022 to reflect the rise in inflation.
For example, a tax rate of 24% applies to taxpayers earning between $178,151 and $340,100 for married couples. Other tax rates for 2022 are:
2022 Tax Brackets For Single Filers Are:
Tax Rate Taxable Income
10% Up 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% Over $539,900
2022 Tax Brackets For Married Couples Filing Jointly Are:
Tax Rate Taxable Income
10% Up to $20,550
12% $20,551 to $83,550
22% $83,551 to $178,150
24% $178,151 to $340,100
32% $340,101 to $431,900
35% $431,901 to $647,850
37% Over $647,850
2022 Tax Brackets For Married Couples Filing Separately Are:
Tax Rate Taxable Income
10% Up 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 $323,925
37% Over $332,925
2022 Tax Brackets For Head Of Household Filers Are:
Tax Rate Taxable Income
10% Up to $14,650
12% $14,651 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% Over $539,900
Information regarding 2022 federal income tax withholding methods can be found in IRS Publication 15-T. Prior year tax information is also available on the IRS website.
Taxpayers who owed taxes for the tax year 2021 may want to review the changes for tax year 2022 to determine if they need to adjust their federal tax withholding based on their estimated taxable income.
Increases to the Standard Deductions in 2022
The standard deduction reduces your taxable income. The IRS increased the standard deduction in 2022 for single filers and married couples filing separately to $12,950. The 2022 standard deduction for taxpayers filing as heads of household increased to $19,400. Lastly, married couples filing jointly can claim a standard deduction of $25,900 for tax year 2022.
If you are over 65 years old or blind, you can also claim an additional $1,400 as part of your standard deduction. Individuals filing as single or head of household can claim $1,750. The additional standard deduction amount doubles if you are 65 or older and blind.
Changes to the Maximum Earned Income Tax Credit for 2022
The earned income tax credit (EITC) is a significant tax credit for many taxpayers. It provides low-income workers and families with a direct tax break. In many cases, it results in a much larger tax refund for the taxpayer. The maximum ETIC increased to $6,935 for qualifying taxpayers.
The amount of the tax credit depends on the person’s income and the number of children claimed on their tax returns. For 2022, the earned income credit is:
No children - $560
1 child - $3,733
2 children - $6,164
3 children - $6,935
The taxpayer’s adjusted gross income cannot exceed the maximum amount set for the taxpayer’s filing status. For example, to receive the maximum ETIC for three children, married couples filing jointly cannot have an AGI over $59,187.
Increases to Income Thresholds for Capital Gains Tax in 2022
Short-term capital gains on the sale of assets are taxed as ordinary income. However, capital gains on long-term assets are taxed at a rate between zero and 20 percent. The capital gains tax on long-term assets is based on the taxpayer's taxable income and filing status.
The good news is the IRS increased the income thresholds for long-term capital gains taxes for the tax year 2022.
A single filer pays zero percent long-term capital gains tax if their taxable income is below $41,675. Married filing jointly taxpayers also pay no taxes for long-term capital gains if their taxable income is $83,350 or less. Single filers making $459,751 or more and married filing jointly filers making $517,201 or more pay 20 percent for long-term capital gains tax in 2022.
There could be ways to reduce capital gains tax through estate planning and tax planning. A Maryland business tax lawyer can help you develop tax strategies that limit your capital gains taxes.
2022 Retirement Plan Income and Contribution Limits
Retirement planning may include a variety of tools, including traditional IRAs (Individual Retirement Accounts), 401k accounts, and the use of various trusts and estate planning tools. Reducing your taxable income is a benefit of retirement planning. Contributing to qualified retirement plans can reduce your taxable income.
The dollar limitation for retirement contributions increased for the tax year 2022. You can contribute more to your retirement accounts
For example, the maximum contribution to a 401k account increased to $20,500 for the tax year 2022. If you are 50 years or older, the catch-up contribution increases to $27,000 for 2022.
Related: How Do I Avoid Taxes in Retirement?
Changes to Gift Taxes and Estate Taxes for 2022
The basic exclusion for estates of decedents who die in 2022 will increase to $12,060,000. The estate tax exclusion for tax year 2021 is $11,700,000.
Additionally, the annual gift tax exclusion is increasing for the tax year 2022. For the calendar year 2022, you may gift up to $16,000 before gift taxes apply.
Related: Maryland Probate & Estate Tax Primer
Contact Our Maryland Tax Attorney for Questions About Changes in Tax Laws
Changes in tax laws create headaches for businesses and individuals. Mistakes and errors can lead to expensive and time-consuming audits. Errors can also result in penalties, fines, and interest. Instead of guessing about a tax matter, contact Steve for help.
