Every year the IRS makes tax code changes to income tax brackets and rates. The adjustments consider the impact of inflation and help to prevent something known as “bracket creep.”
Bracket creep occurs when inflation pushes income into a higher tax bracket. As a result, the taxpayer sees an increase in income taxes owed without any real increase in purchasing power.
Tax brackets are set by the government in fixed amounts according to a statute. The IRS relies on data from the Consumer Price Index to guide its adjustments. Changes are calculated by multiplying the base value of a tax parameter by the Consumer Price Index then dividing the result by the CPI of the previous year.
The IRS also considers the average wage growth in a given year. The IRS published tax code adjustments on its website.
You can review tax changes for 2022 on the IRS website or review our summary below.
Tax Changes for 2022
- Changes to Standard Deductions
- Personal Exemptions
- Marginal Rates
- Itemized Deductions
- Alternative Minimum Tax Exemption
- Earned Income Credit
- Qualified Transportation Fringe Benefit (Monthly Limitation)
- Flexible Spending Accounts
- Lifetime Learning Credit
- Foreign Earned Income
- Estate Taxes
Changes to Standard Deductions
In the United States the standard deduction is an amount that taxpayers may subtract from their income before income tax is applied, without having to itemize. Taxpayers can make itemized deductions or take the standard deduction and will choose whichever results in the lowest amount of taxes owed.
Married Couple Filing Jointly:
- $25,900 (an $800 increase)
Single Taxpayers including Married Individuals Filing Separately:
- $12,950 (a $400 increase)
Heads of Households:
- $19,400 (a $600 increase)
Personal Exemptions
A personal exemption is money deducted from tax for yourself and for any dependents. The Tax Cuts and Jobs Act of 2017 eliminated personal exemptions for tax years 2018 through 2025. As a result, personal exemptions for tax year 2022 remain a 0.
Marginal Rates
In a tax system, rate is the ratio at which a person or business is taxed and it is expressed as a percentage. There are several ways to present a tax rate: statutory, average, marginal and effective.
The marginal tax rate is the amount of additional tax paid for every additional dollar earned as income over a particular threshold.
Individual Single Filers or Married Couples Filing Separately who make:
- More than $539,900 = 37%
- More than $215,950 = 35%
- More than $170,050 = 32%
- More than $89,075 = 24%
- More than $41,775 = 22%
- More than $10,275 = 12%
- Less than 10,275 = 10%
Married Couples Filing Jointly who make:
- More than $647,850 = 37%
- More than $431,900 = 35%
- More than $340,100 = 32%
- More than $178,150 = 24%
- More than $83,550 = 22%
- More than $20,550 = 12%
- Less than $20,550 = 10%
Itemized Deductions
In 2022, there remains no limit on itemized deductions. The limit was removed by the Tax Cuts and Jobs Act.
Alternative Minimum Tax Exemption
The alternative minimum tax (AMT) establishes the lowest percentage of taxes that a filer must pay, regardless of how many deductions or credits they claim. With AMT, You must recalculate your taxes if your income is greater than the AMT exemption.
Calculate AMT if your adjusted gross income (AGI) exceeds the exemption for your filing status.
Individual Single Filers or Married Couples Filing Separately AGI:
- $75,900 or more, calculate AMT
Married Couples Filing Jointly AGI:
- $118,100 or more, calculate AMT
How to Calculate AMT
- Calculate the regular income tax you owe, including deductions
- Calculate AMT by adding back in certain deductions that you claimed
- Pay the tax amount that is the highest.
The Alternative Minimum Tax exemption amount for 2022 is $75,900 and begins to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption begins to phase out at $1,079,800).
Earned Income Credits
The Earned Income Tax Credit (EITC) is a tax credit that benefits low to moderate-income individuals and families who earn income from a job.
To qualify for the EITC, you must:
- Have worked and earned income under $57,414
- Have investment income below $10,000 in the tax year 2021
- Have a valid Social Security number by the due date of your 2021 return (including extensions)
- Be a U.S. citizen or a resident alien all year
- Not file Form 2555 (foreign earned income)
The maximum EITC for tay year 2022 include:
- $1,502: No qualifying children
- $3,618: 1 qualifying child
- $5,980: 2 qualifying children
- $6,935: (a $207 increase) 3+ qualifying children
Qualified Transportation Fringe Benefit (Monthly Limitation)
The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $280 for tax year 2022.
Flexible Spending Accounts
Health Savings Account
Employee salary deductions for contributions to a health flexible savings account (FSA) have increased to $2,850.
Cafeteria Plans
For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $570, an increase of $20 from taxable years beginning in 2021.
Self-only Coverage in a Medical Savings Accounts
- The plan must have an annual deductible that is not less than $2,450 (a $50 increase)
- Deductible not to exceed more than $3,700 (a $100 increase).
- The maximum out-of-pocket expense is $4,950 (a $150 increase)
Family Coverage
- The annual deductible must not be less than $4,950 (a $4,800 increase)
- Deductible not to exceed $7,400 (a $250 increase)
- The maximum out-of-pocket expense limit is $9,050 (a $300 increase)
Lifetime Learning Credit
The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
Foreign Earned Income
The foreign earned income exclusion is $112,000 (up from $108,700).
Estate Taxes
- Estates of decedents who die during 2022 have a basic exclusion amount of $12,060,000, up from a total of $11,700,000 for estates of decedents who died in 2021.
- The annual exclusion for gifts increases to $16,000 for calendar year 2022, up from $15,000 for calendar year 2021.
- The maximum credit allowed for adoptions for tax year 2022 is the amount of qualified adoption expenses up to $14,890, up from $14,440 for 2021.
Wondering if you should get help filing your taxes?
Check out our pros and cons of using tax prep software and take our quiz to see if you should DIY your return this year or if hiring a tax preparer is the best way to go.
*Please Note: This blog does not substitute professional advice from a professional tax preparer. We aren’t qualified to make final decisions about your taxes. Only you can do that. We have, however, done extensive research about tax preparation. The results of this are a guidepost that can help consider your tax preparation options as a new homeowner.