It seems like you just finished filing your tax return and now it’s almost time to step into the ring with the IRS again. But as you contemplate gathering receipts and tax records for 2021, the IRS is at work adjusting tax brackets for 2022.
The U.S. tax system uses a graduated scale, meaning you pay different percentages on your taxable income. For example, in 2021 you pay 10% on the first $9,950 of what you make, 12% from $9,950-$40,525, and so on.
There will still be seven tax brackets in 2022. The percentages for each bracket remain the same, ranging from 10%-37%, but the amount of income in each bracket will be shifted upward. The Internal Revenue Service increases the brackets every year to adjust for inflation and reduce “bracket creep.” That’s when a taxpayer gets pushed into a higher bracket because of inflation, not because they earned more money.
Here are the 2022 income brackets compared to 2021. You’ll pay:
2022
- 37% on income over $539,900 or $647,850 for married couples filing jointly
- 35% on income over $215,950 or $431,900 for married couples filing jointly
- 32% on income over $170,050 or $340,100 for married couples filing jointly
- 24% on income over $ 89,075 or $178,150 for married couples filing jointly
- 22% on income over $ 41,775 or $ 83,550 for married couples filing jointly
- 12% on income over $ 10,275 or $ 20,550 for married couples filing jointly
- 10% on income of $ 10,275 or less or $20,550 for married couples filing jointly
2021
- 37% on income over $523,600 or $628,300 for married couples filing jointly
- 35% on income over $209,425 or $418,850 for married couples filing jointly
- 32% on income over $164,925 or $329,850 for married couples filing jointly
- 24% on income over $ 86,375 or $172,750 for married couples filing jointly
- 22% on income over $ 40,525 or $ 81,050 for married couples filing jointly
- 12% on income over $ 9,950 or $ 19,900 for married couples filing jointly
- 10% on income of $ 9,950 or less or $19,900 for married couples filing jointly
The standard deduction will also be adjusted upward next year. For single tax filers, the SD will go to $12,950 from $12,550. For couples filing jointly the 2022 SD moves to $25,900 from $25,100.
Single tax filers age 65 or older who are not a surviving spouse can add an additional $1,750 to the standard deduction, and joint filers 65 and up can add $1,400 each to their standard deduction, which would add $2,800 to their SD.
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.
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. It 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.
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. The 28% AMT rate applies to excess AMTI of $206,100 for all taxpayers, $103,050 for married couples filing separate returns.
Capital Gains
The percentage you’ll pay on capital gains remains the same in 2022, but the income levels have been shifted.
- 15%
- For single tax filers with income above $41,675
- For married individuals filing jointly with income above $83,350
- 20%
- For single tax filers with income above $459,750
- For married individuals filing jointly with income above $517,200
There are other shifts in income brackets for what the IRS calls Revenue Procedure. You can find specifics at https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022
