The Internal Revenue Service recently issued inflation adjustments for the 2022 tax year. Each year, the IRS adjusts over 60 tax parameters to account for inflation.
The government makes these adjustments to help prevent “bracket creep” — in which taxpayers end up being taxed in higher brackets due to inflation as opposed to a real increase in income. In addition to adjusting tax brackets, the IRS also adjusts the values of tax exemptions, deductions and credits.
2022 IRS Inflation Adjustments
This year, the IRS’ inflation adjustments are greater than usual to account for the rapid inflation that’s taken place over the year. The 2022 adjustments increased the income tax bracket thresholds by about 3%, significantly higher than the roughly 1% increases the IRS made for the last tax year.
Here is a summary of what the new tax brackets and tax rates look like for each filing status:
2022 Tax Brackets
|Tax Rate||For Single Filers||For Heads of Households||For Married Individuals Filing Joint Returns|
|10%||$0 to $10,275||$0 to $14,650||$0 to $20,550|
|12%||$10,276 to $41,775||$14,651 to $55,900||$20,551 to $83,550|
|22%||$41,776 to $89,075||$55,901 to $89,050||$83,551 to $178,150|
|24%||$89,076 to $170,050||$89,051 to $170,050||$178,151 to $340,100|
|32%||$170,051 to $215,950||$170,051 to $215,950||$340,101 to $431,900|
|35%||$215,951 to $539,900||$215,951 to $539,900||$431,901 to $647,850|
|37%||$539,901 or more||$539,901 or more||$647,851 or more|
The standard deduction for taxpayers increased 3.19%, which is more than double the 1.21% inflation adjustment made in 2021. The new standard deductions for each filing status are shown in the table below:
|2022 Standard Tax Deductions|
|Single Filers||Heads of Household||Married Filing Jointly|
|$12,950 (up $400)||$19,400 (up $600)||$25,900 (up $800)|
In addition to adjustments to tax brackets and the standard deduction, the IRS also adjusted parameters relating to exemptions, exclusions and tax credits.
Adjustments to Exemptions, Exclusions and Credits
- Earned Income Tax Credit
- The Earned Income Tax Credit increased to a maximum of $6,935 for taxpayers with three or more qualifying children, up from a maximum of $6,728 last year.
- Adoption Credit
- The maximum credit amount for qualifying adoption expenses increased to $14,890, up from $14,440 in the previous year.
- Estate Tax Exclusion
- The basic exclusion amount for estates of decedents who die during 2022 increased to $12,060,000, up from $11,700,000 in 2021.
- Gift Tax Exclusion
- The annual exclusion for gifts increased to $16,000 for the 2022 calendar year, up from $15,000 in 2021.
- Foreign Earned Income Exclusion
- The foreign earned income exclusion for tax year 2022 increased to $112,000 up from $108,700 for tax year 2021.
- Alternative Minimum Tax Exemption for Single Filers
- The alternative minimum tax exemption for single filers is $75,900 and begins to phase out at $539,900. In 2021, the exemption amount was $73,600 and began to phase out at $523,600.
- Alternative Minimum Tax Exemption for Joint Filers
- The alternative minimum tax exemption for married couples filing jointly is $118,100 and begins to phase out at $1,079,800. In 2021, the exemption amount was $114,600 and began to phase out at $1,047,200.
How Might These Inflation Adjustments Impact Taxpayers?
The larger adjustments to tax parameters this year reflect the rapidly rising inflation reported during the 2021 calendar year. The IRS uses the Consumer Price Index (CPI) to calculate inflation adjustments, according to Thomas J. Brock, a certified public accountant and finance professional. In 2021, the CPI reported higher than normal inflation due to factors such as supply chain issues, greater consumer demand and increased wage pressure in multiple industries.
The IRS issues inflation adjustments each year to account for these increases in the prices of goods and services in the economy. “As you make more money, the IRS looks to tax your inflated dollars in an equitable manner from one year to the next,” says Brock.
Because the adjustments are intended to help taxation keep pace with inflation, they shouldn’t have a real impact on your tax liability or refund year over year, Brock shares. A significant change in your amount of tax owed or your refund is usually due to a change in income or spending habits that deviates from the rate of inflation, or a change in the deductions or credits you claim when filing your taxes.
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- Brock, T. (2022, February 28). Email interview with Annuity.org.
- Internal Revenue Service. (2021, December 15). IRS Provides Tax Inflation Adjustments for Tax Year 2022. Retrieved from https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022
- Internal Revenue Service. (2021, May 17). IRS Provides Tax Inflation Adjustments for Tax Year 2021. Retrieved from https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2021
- Picchi, A. (2021, November 12). IRS Says It’s Boosting Tax Brackets Due to Faster Inflation. Retrieved from https://www.cbsnews.com/news/tax-bracket-changes-2022-irs-inflation/
- York, E. (2021, November 10). 2022 Tax Brackets. Retrieved from https://taxfoundation.org/2022-tax-brackets/