With the start of 2022 also brings yearly adjustments from the Internal Revenue Service (IRS) to more than 60 tax provisions that adjust annually for inflation. The IRS used to use the Consumer Price Index (CPI) as a measure of inflation prior to 2018. However, with the Tax Cuts and Jobs Act of 2017 (TCJA), the IRS now uses the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly.
The new inflation adjustments are for tax year 2022, for which taxpayers will file tax returns in early 2023.
2022 Federal Income Tax Brackets and Rates
In 2022, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Table 1). There are seven federal income tax rates in 2022: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The top marginal income tax rate of 37 percent will hit taxpayers with taxable income above $539,900 for single filers and above $647,850 for married couples filing jointly.
|2022 Tax Brackets for Single Filers, Married Couples Filing Jointly, and Heads of Households|
|Rate||For Unmarried Individuals||For Married Individuals Filing Joint Returns||For Heads of Households|
|10%||$0 to $10,275||$0 to $20,550||$0 to $14,650|
|12%||$10,275 to $41,775||$20,550 to $83,550||$14,650 to $55,900|
|22%||$41,775 to $89,075||$83,550 to $178,150||$55,900 to $89,050|
|24%||$89,075 to $170,050||$178,150 to $340,100||$89,050 to $170,050|
|32%||$170,050 to $215,950||$340,100 to $431,900||$170,050 to $215,950|
|35%||$215,950 to $539,900||$431,900 to $647,850||$215,950 to $539,900|
|37%||$539,900 or more||$647,850 or more||$539,900 or more|
2022 Standard Deduction and Personal Exemption
The standard deduction will increase by $400 for single filers and by $800 for joint filers.
The personal exemption for 2022 remains at $0 (eliminating the personal exemption was part of TCJA).
|Filing Status||Deduction Amount|
|Married Filing Jointly||$25,900|
|Head of Household||$19,400|
2022 Alternative Minimum Tax (AMT)
The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer pays the higher of the two calculations.
The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.
The AMT exemption amount for 2022 is $75,900 for singles and $118,100 for married couples filing jointly.
|2022 Alternative Minimum Tax Exemptions|
|Filing Status||Exemption Amount|
|Married Filing Jointly||$118,100|
In 2022, the 28 percent AMT rate applies to excess AMTI of $206,100 for all taxpayers ($103,050 for married couples filing separate returns).
AMT exemptions phase out at 25 cents per dollar earned once AMTI reaches $539,900 for single filers and $1,079,800 for married taxpayers filing jointly.
|2022 Alternative Minimum Tax Exemption Phaseout Thresholds|
|Married Filing Jointly||$1,079,800|
2022 Earned Income Tax Credit (EITC)
The maximum Earned Income Tax Credit (EITC) in 2022 for single and joint filers is $560 if the filer has no children (Table 5). The maximum credit is $3,733 for one child, $6,164 for two children, and $6,935 for three or more children.
|2022 Earned Income Tax Credit Parameters|
|Filing Status||No Children||One Child||Two Children||Three or More Children|
|Single or Head of Household||Income at Max Credit||$7,320||$10,980||$15,410||$15,410|
|Phaseout Ends (Credit Equals Zero)||$16,480||$43,492||$49,399||$53,057|
|Married Filing Jointly||Income at Max Credit||$7,320||$10,980||$15,410||$15,410|
|Phaseout Ends (Credit Equals Zero)||$22,610||$49,622||$55,529||$59,187|
2022 Child Tax Credit
The maximum Child Tax Credit is $2,000 per qualifying child and is not adjusted for inflation. The refundable portion of the Child Tax Credit is adjusted for inflation and will increase from $1,400 to $1,500 for 2022.
2022 Capital Gains Tax Rates & Brackets (Long-term Capital Gains)
Long-term capital gains are taxed using different brackets and rates than ordinary income.
|2022 Capital Gains Tax Brackets|
|For Unmarried Individuals, Taxable Income Over||For Married Individuals Filing Joint Returns, Taxable Income Over||For Heads of Households, Taxable Income Over|
2022 Qualified Business Income Deduction (Sec. 199A)
The TCJA includes a 20 percent deduction for pass-through businesses. Limits on the deduction begin phasing in for taxpayers with income above $170,050 (or $340,100 for joint filers) in 2022.
|2022 Qualified Business Income Deduction Thresholds|
|Married Filing Jointly||$340,100|
2022 Annual Exclusion for Gifts and Gift and Estate Exemption
In 2022, the first $16,000 of gifts to any person are excluded from tax, up from $15,000. The exclusion is increased to $164,000 from $159,000 for gifts to spouses who are not citizens of the United States. The estate and gift tax exemption for 2022 is $12.06 million.
2022 Possible Tax Changes?
The Build Back Better Act passed the House of Representatives on November 19, 2021. The Senate version may differ greatly before it is sent back to the House for a final vote. The Senate is expected to resume negotiations when it reconvenes in January 2022.
If you have questions about how these tax changes may impact you or your business, please contact Sandra Martin Clark or your Manning Fulton relationship attorney.