Key takeaways
- The IRS made inflation adjustments to tax provisions for the 2022 tax year, impacting returns filed in 2023.
- Tax brackets and standard deductions have increased across multiple filing statuses to account for inflation.
- The Earned Income Tax Credit (EITC) maximum increased to $6,935, offering additional relief to qualifying taxpayers.
- Long-term capital gains thresholds have risen, potentially lowering taxes for some asset sales.
- Limits for contributions to 401(k)s, IRAs, and estate/gift tax exclusions rose in 2022, affecting retirement and estate planning strategies.
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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:
- 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 Filing Jointly:
- 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 Filing Separately:
- 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:
- 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.
Increases to the Standard Deductions in 2022
The IRS increased the standard deduction in 2022 for single filers and married couples filing separately to $12,950. The 2022 standard deduction for heads of household is $19,400. Married couples filing jointly can claim a deduction of $25,900. Additional deductions apply for individuals over 65 or blind.
Changes to the Maximum Earned Income Tax Credit for 2022
The Earned Income Tax Credit (EITC) for 2022 maxes out at $6,935. Credits by number of children:
- No children - $560
- 1 child - $3,733
- 2 children - $6,164
- 3 children - $6,935
Income limits apply. For example, married couples filing jointly with three children must have an AGI below $59,187.
Increases to Income Thresholds for Capital Gains Tax in 2022
Long-term capital gains are taxed at 0%, 15%, or 20%. Due to inflation, thresholds increased. For example, a single filer earning less than $41,675 pays 0% on long-term gains; over $459,751 pays 20%.
Consulting with a Maryland business tax lawyer may help minimize capital gains tax via smart planning.
2022 Retirement Plan Income and Contribution Limits
The 2022 401(k) contribution limit is $20,500. Those age 50+ can contribute up to $27,000. These retirement contributions may reduce your taxable income.
Related: How Do I Avoid Taxes in Retirement?
Changes to Gift Taxes and Estate Taxes for 2022
The estate tax exemption for 2022 is $12,060,000 (up from $11.7M). The annual gift tax exclusion increases to $16,000 per person.
Related: Maryland Probate & Estate Tax Primer
Contact Our Maryland Tax Attorney for Questions About Changes in Tax Laws
Changes in tax laws can create confusion. Mistakes result in audits, penalties, and interest. Contact Steve for assistance.
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