IR-2021-219, November 10, 2021
WASHINGTON — The Internal Revenue Service today announced the tax year 2022 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2021-45 PDF provides details about these annual adjustments.
Highlights of changes in Revenue Procedure 2021-45:The tax year 2022 adjustments described below generally apply to tax returns filed in 2023.
The tax items for tax year 2022 of greatest interest to most taxpayers include the following dollar amounts:
Tax Brackets
There are seven tax brackets for most ordinary income for the 2021 tax year: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Your tax bracket depends on your taxable income and your filing status: single, married filing jointly or qualifying widow(er), married filing separately and head of household. Generally, as you move up the pay scale, you also move up the tax scale.
2021 tax brackets (taxes due April 2022 or October 2022 with an extension)TAX RATESINGLEHEAD OF HOUSEHOLDMARRIED FILING JOINTLY OR QUALIFYING WIDOWMARRIED FILING SEPARATELYSource: IRS10%$0 to $9,950$0 to $14,200$0 to $19,900$0 to $9,950
12%$9,951 to $40,525$14,201 to $54,200$19,901 to $81,050$9,951 to $40,525
22%$40,526 to $86,375$54,201 to $86,350$81,051 to $172,750$40,526 to $86,375
24%$86,376 to $164,925$86,351 to $164,900$172,751 to $329,850$86,376 to $164,925
32%$164,926 to $209,425$164,901 to $209,400$329,851 to $418,850$164,926 to $209,425
35%$209,426 to $523,600$209,401 to $523,600$418,851 to $628,300$209,426 to $314,150
37%$523,600 or more$523,600 or more$628,300 or more$314,151 or moreThe IRS on Nov. 10 announced new tax brackets for the 2022 tax year, for taxes you’ll file in April 2023, or October 2023 if you file an extension. There are seven tax brackets for most ordinary income for the 2022 tax year: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
2022 tax brackets (taxes due April 2023 or October 2023 with an extension)TAX RATESINGLEHEAD OF HOUSEHOLDMARRIED FILING JOINTLY OR QUALIFYING WIDOWMARRIED FILING SEPARATELYSource: IRS10%$0 to $10,275$0 to $14,650$0 to $20,550$0 to $10,275
12%$10,276 to $41,775$14,651 to $55,900$20,551 to $83,550$10,276 to $41,775
22%$41,776 to $89,075$55,901 to $89,050$83,551 to $178,150$41,776 to $89,075
24%$89,076 to $170,050$89,051 to $170,050$178,151 to $340,100$89,076 to $170,050
32%$170,051 to $215,950$170,051 to $215,950$340,101 to $431,900$170,051 to $215,950
35%$215,951 to $539,900$215,951 to $539,900$431,901 to $647,850$215,951 to $323,925
37%$539,901 or more$539,901 or more$647,851 or more$323,926 or moreHow federal tax brackets workTax brackets are not as intuitive as they seem because most taxpayers have to look at more than one bracket to know their effective tax rate.
Instead of looking at what tax bracket you fall in based on your income, determine how many individual tax brackets you overlap based on your gross income.
Figuring that out is easier in practice:
Marginal tax rate definition and exampleAnother way of describing the U.S. tax system is by saying that most Americans are charged a marginal tax rate. That’s because as income rises, it is taxed at a higher rate. In other words, the last dollar that an American earns is taxed more than the first dollar. This is what’s known as a progressive tax system.
The technical definition of a marginal tax rate would be the rate that each individual taxpayer pays on their additional dollars of income.
How to get into a lower tax bracketAmericans have two main ways to get into a lower tax bracket: tax credits and tax deductions.
Tax credits are a dollar-for-dollar reduction in your income tax bill. If you have a $2,000 tax bill but are eligible for $500 in tax credits, your bill drops to $1,500. Tax credits can save you more in taxes than deductions, and Americans can qualify for a variety of different credits.
The federal government gives tax credits for the cost of buying solar panels for your house and to offset the cost of adopting a child. Americans can also use education tax credits, tax credits for the cost of child care and dependent care and tax credits for having children, to name a few. Many states also offer tax credits.
While tax credits reduce your actual tax bill, tax deductions reduce the amount of your income that is taxable. If you have enough deductions to exceed the standard deduction for your filing status, you can itemize those expenses to lower your taxable income. For example, if your medical expenses exceed 10% of your adjusted gross income in 2021, you can claim those and lower your taxable income.
WASHINGTON — The Internal Revenue Service today announced the tax year 2022 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2021-45 PDF provides details about these annual adjustments.
Highlights of changes in Revenue Procedure 2021-45:The tax year 2022 adjustments described below generally apply to tax returns filed in 2023.
The tax items for tax year 2022 of greatest interest to most taxpayers include the following dollar amounts:
- The standard deduction for married couples filing jointly for tax year 2022 rises to $25,900 up $800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,950 for 2022, up $400, and for heads of households, the standard deduction will be $19,400 for tax year 2022, up $600.
- The personal exemption for tax year 2022 remains at 0, as it was for 2021, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
- Marginal Rates: For tax year 2022, the top tax rate remains 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly).The other rates are:
35%, for incomes over $215,950 ($431,900 for married couples filing jointly);
32% for incomes over $170,050 ($340,100 for married couples filing jointly);
24% for incomes over $89,075 ($178,150 for married couples filing jointly);
22% for incomes over $41,775 ($83,550 for married couples filing jointly);
12% for incomes over $10,275 ($20,550 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly). - For 2022, as in 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
- The Alternative Minimum Tax exemption amount for tax year 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). The 2021 exemption amount was $73,600 and began to phase out at $523,600 ($114,600 for married couples filing jointly for whom the exemption began to phase out at $1,047,200).
- The tax year 2022 maximum Earned Income Tax Credit amount is $6,935 for qualifying taxpayers who have three or more qualifying children, up from $6,728 for tax year 2021. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
- For tax year 2022, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $280.
- For the taxable years beginning in 2022, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $2,850. 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.
- For tax year 2022, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,450, up $50 from tax year 2021; but not more than $3,700, an increase of $100 from tax year 2021. For self-only coverage, the maximum out-of-pocket expense amount is $4,950, up $150 from 2021. For tax year 2022, for family coverage, the annual deductible is not less than $4,950, up from $4,800 in 2021; however, the deductible cannot be more than $7,400, up $250 from the limit for tax year 2021. For family coverage, the out-of-pocket expense limit is $9,050 for tax year 2022, an increase of $300 from tax year 2021.
- 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 in excess of $80,000 ($160,000 for joint returns).
- For tax year 2022, the foreign earned income exclusion is $112,000 up from $108,700 for tax year 2021.
- 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.
- News Release IR-2021-216, IRS announces 401(k) limit increases to $20,500.
Tax Brackets
There are seven tax brackets for most ordinary income for the 2021 tax year: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Your tax bracket depends on your taxable income and your filing status: single, married filing jointly or qualifying widow(er), married filing separately and head of household. Generally, as you move up the pay scale, you also move up the tax scale.
2021 tax brackets (taxes due April 2022 or October 2022 with an extension)TAX RATESINGLEHEAD OF HOUSEHOLDMARRIED FILING JOINTLY OR QUALIFYING WIDOWMARRIED FILING SEPARATELYSource: IRS10%$0 to $9,950$0 to $14,200$0 to $19,900$0 to $9,950
12%$9,951 to $40,525$14,201 to $54,200$19,901 to $81,050$9,951 to $40,525
22%$40,526 to $86,375$54,201 to $86,350$81,051 to $172,750$40,526 to $86,375
24%$86,376 to $164,925$86,351 to $164,900$172,751 to $329,850$86,376 to $164,925
32%$164,926 to $209,425$164,901 to $209,400$329,851 to $418,850$164,926 to $209,425
35%$209,426 to $523,600$209,401 to $523,600$418,851 to $628,300$209,426 to $314,150
37%$523,600 or more$523,600 or more$628,300 or more$314,151 or moreThe IRS on Nov. 10 announced new tax brackets for the 2022 tax year, for taxes you’ll file in April 2023, or October 2023 if you file an extension. There are seven tax brackets for most ordinary income for the 2022 tax year: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
2022 tax brackets (taxes due April 2023 or October 2023 with an extension)TAX RATESINGLEHEAD OF HOUSEHOLDMARRIED FILING JOINTLY OR QUALIFYING WIDOWMARRIED FILING SEPARATELYSource: IRS10%$0 to $10,275$0 to $14,650$0 to $20,550$0 to $10,275
12%$10,276 to $41,775$14,651 to $55,900$20,551 to $83,550$10,276 to $41,775
22%$41,776 to $89,075$55,901 to $89,050$83,551 to $178,150$41,776 to $89,075
24%$89,076 to $170,050$89,051 to $170,050$178,151 to $340,100$89,076 to $170,050
32%$170,051 to $215,950$170,051 to $215,950$340,101 to $431,900$170,051 to $215,950
35%$215,951 to $539,900$215,951 to $539,900$431,901 to $647,850$215,951 to $323,925
37%$539,901 or more$539,901 or more$647,851 or more$323,926 or moreHow federal tax brackets workTax brackets are not as intuitive as they seem because most taxpayers have to look at more than one bracket to know their effective tax rate.
Instead of looking at what tax bracket you fall in based on your income, determine how many individual tax brackets you overlap based on your gross income.
Figuring that out is easier in practice:
- Example one: Say you’re a single individual who earned $40,000 of taxable income in the 2021 tax year. Technically, you’d be aligned in the 12% tax bracket, but your income wouldn’t be levied a 12% rate across the board. Instead, you would follow the tax bracket up on the scale, paying 10% on the first $9,950 of your income and then 12% on the next chunk of your income between $9,951 and $40,525. Because you don’t make above $40,525, none of your income would be hit at the 22% rate.
- Example two: Say you’re a single individual in 2021 who earned $70,000 of taxable income. You would pay 10% on the first $9,950 of your earnings ($995); then 12% on the chunk of earnings from $9,951 to $40,525 ($3,669), then 22% on the remaining income ($6,484.50)
- Your total tax bill would be $11,148.50. Divide that by your earnings of $70,000 and you get an effective tax rate of roughly 16%, which is lower than the 22% bracket you’re in.
Marginal tax rate definition and exampleAnother way of describing the U.S. tax system is by saying that most Americans are charged a marginal tax rate. That’s because as income rises, it is taxed at a higher rate. In other words, the last dollar that an American earns is taxed more than the first dollar. This is what’s known as a progressive tax system.
The technical definition of a marginal tax rate would be the rate that each individual taxpayer pays on their additional dollars of income.
How to get into a lower tax bracketAmericans have two main ways to get into a lower tax bracket: tax credits and tax deductions.
Tax credits are a dollar-for-dollar reduction in your income tax bill. If you have a $2,000 tax bill but are eligible for $500 in tax credits, your bill drops to $1,500. Tax credits can save you more in taxes than deductions, and Americans can qualify for a variety of different credits.
The federal government gives tax credits for the cost of buying solar panels for your house and to offset the cost of adopting a child. Americans can also use education tax credits, tax credits for the cost of child care and dependent care and tax credits for having children, to name a few. Many states also offer tax credits.
While tax credits reduce your actual tax bill, tax deductions reduce the amount of your income that is taxable. If you have enough deductions to exceed the standard deduction for your filing status, you can itemize those expenses to lower your taxable income. For example, if your medical expenses exceed 10% of your adjusted gross income in 2021, you can claim those and lower your taxable income.