The IRS has announced changes to income tax rules for the upcoming tax year, 2022. These adjustments are due to inflation, which is currently at a historically high rate. The tax brackets have shifted, and there are new numbers for the standard deduction, exemptions, other deductions, and tax credits. Here’s an overview of all the changes.

Standard deduction amounts

For the 2022 tax year, the standard deduction amount will increase for most taxpayers. It will be $12,950 for individuals and for married couples who file separately. This is a $400 increase. The new standard deduction for married couples filing jointly and for surviving spouses is $25,900, which is up $800 from the previous year.

Tax brackets and rates

The IRS has also increased the tax bracket limits to account for inflation. There are seven tax brackets, and each one has its own tax rate: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Here are the new tables provided by the IRS.

 

Married Individuals Filing Joint Returns and Surviving Spouses

If Taxable Income Is: The Tax Is:
Not over $20,550 10% of the taxable income
Over $20,550 but not over $83,550 $2,055 plus 12% of the excess over $20,550
Over $83,550 but not over $178,150 $9,615 plus 22% of the excess over $83,550
Over $178,150 but not over $340,100 $30,427 plus 24% of the excess over $178,150
Over $340,100 but not over $431,900 $69,295 plus 32% of the excess over $340,100
Over $431,900 but not over $647,850 $98,671 plus 35% of the excess over $431,900
Over $647,850 $174,253.50 plus 37% of the excess over $647,850

 

Individuals 

If Taxable Income Is: The Tax Is:
Not over $10,275 10% of the taxable income
Over $10,275 but not over $41,775 $1,027.50 plus 12% of the excess over $10,275
Over $41,775 but not over $89,075 $4,807.50 plus 22% of the excess over $41,775
Over $89,075 but not over $170,050 $15,213.50 plus 24% of the excess over $89,075
Over $170,050 but not over $215,950 $34,647.50 plus 32% of the excess over $170,050
Over $215,950 but not over $539,900 $49,335.50 plus 35% of the excess over $215,950
Over $539,900 $162,718 plus 37% of the excess over $539,900

 

Married Individuals Filing Separate Returns

If Taxable Income Is: The Tax Is:
Not over $10,275 10% of the taxable income
Over $10,275 but not over $41,775 $1,027.50 plus 12% of the excess over $10,275
Over $41,775 but not over $89,075 $4,807.50 plus 22% of the excess over $41,775
Over $89,075 but not over $170,050 $15,213.50 plus 24% of the excess over $89,075
Over $170,050 but not over $215,950 $34,647.50 plus 32% of the excess over $170,050
Over $215,950 but not over $323,925 $49,335.50 plus 35% of the excess over $215,950
Over $323,925 $87,126.75 plus 37% of the excess over $323,925

Exemptions

There are numerous exemptions in the tax code, so there are probably some that will apply to you. Here are some of the most notable changes.

Alternative Minimum Tax exemption

The Alternative Minimum Tax (AMT) exemption for 2022 has increased slightly from 2021. For individuals, the number is $75,900, up from $73,600 in 2021. For married couples filing jointly, the new exemption amount is $118,100, which is an increase from the 2021 amount: $114,600. 

For individuals, the 2022 AMT starts to phase out at $539,900. It phases out for married filing jointly couples at $1,079,800.

Personal exemption 

The personal exemption was eliminated in the Tax Cuts and Jobs Act. This hasn’t changed for 2022, so the exemption remains at 0.

Gift tax exclusion

For 2022, the annual gift tax exclusions will increase to $16,000 from the 2021 limit of $15,000. This means that you can gift up to $16,000 to any recipient without having to pay the gift tax.

Federal estate tax exemption

The federal estate tax exemption has also increased over the 2021 limit. For 2022, it’s $12.06 million per person (up from $11.7 million) or $24.12 million for a married couple.

 

“Kiddie tax”

The so-called “kiddie tax” relates to a child’s (under age 19, or a college student under age 24) unearned income, such as interest, inherited IRA distributions, and taxable scholarships. This sort of income is taxed at the parent’s marginal tax rate.

For dependent children who file their own return, the 2022 standard deduction is at most the greater of 1) $1,150 or 2) the sum of $400 and the individual’s earned income. A child who only has unearned income and whose gross income is between $1,150 and $11,500 may choose not to file their own return but instead to have their income included on their parent’s tax return. 

Credits and deductions 

There are many credits and deductions in the tax code, so it’s important to read through everything or work with a CPA to make sure you are getting everything you’re eligible for. Here are some highlights of the most common deductions and credits for 2022.

  • Itemized deductions: No limit because the limitation was eliminated by the Tax Cuts and Jobs Act.
  • Student Loan Interest Deduction: This is a $2,500 deduction for interest paid on student loans. It starts to phase out depending on modified adjusted gross income (MAGI): $70,000 for individuals and $145,000 for married couples filing jointly.
  • Commuting benefits: The monthly limit for qualified transportation fringe benefits and for qualified parking is now up to $280.
  • Flexible Savings Accounts: The limit for 2022 FSA contributions is $2,850. 
  • Earned Income Tax Credit: The 2022 amount for qualifying individuals with three or more qualifying children is $6,935, which is slightly more than the 2021 amount: $6,728.

Plan ahead to avoid unpleasant tax surprises

The U.S. tax code is complicated, especially since there are changes to it every year. There may still be some changes to 2022 taxes depending on whether the government passes some of the infrastructure and budget bills it’s debating. The only things we know for sure right now are the inflation adjustments for income taxes.

Even if you hire a CPA to do your taxes, it’s a good idea to have a basic understanding of what your taxes will look like so you can plan ahead. You might want to change your retirement contributions or employer’s withholding amounts.

Having a comprehensive budget makes it much easier to plan for tax season. It sounds boring, but with our unique BudgetingBlocks™ system, you can easily visualize your money and decide where you want it to go. Simplify your financial conversations with your partner and add some fun to your money management.