Income Tax Brackets 2022Shelby Wall
Each year, the IRS adjusts tax provisions to sync with economic changes. When tax time rolls around, you’ll want to know where you fall in income tax brackets, as well as how inflation interacts with your bracket, credits and deductions. You’ll also want to know the tax rates associated with your bracket, and why it’s important that the IRS adapts each year to prevent bracket creep.
What is “Bracket Creep”?
Bracket creep is a term that refers to the interaction between inflation and tax brackets. For example, if inflation rises enough, it can push someone into a higher tax bracket, resulting in an increased tax rate. Bracket creep can also decrease the value of credits, deductions, and exemptions for people already in higher tax brackets due to this discrepancy. This makes it especially important for the IRS to adjust brackets to reflect current economic conditions in order to prevent bracket creep.
Importance of Income Tax Brackets
Tax brackets help the government discern how much you will be taxed, based on your income and filing status. In general, people in higher tax brackets pay more in taxes. However, higher brackets also come with more deductions and exemptions to save money. This means that moving up a tax bracket can have positive and negative effects for taxes, as you have more opportunity for savings despite the associated higher tax rates.
How is Inflation Measured?
The IRS used to measure inflation rates using the Consumer Price Index, but now uses the Chained Consumer Price Index (C-CPI) to determine adjustments to tax brackets, deduction amounts and credit values. This index reflects the cost of living through the average costs of goods and services, and unlike CPI, creates a fuller picture of the economy by factoring in changes to consumer spending habits. This measures inflation, which shows the current purchasing power of money. As the value of currency decreases, people making seemingly more money have less buying power, and therefore need to be classified in a lower bracket than in past years.
How Has Inflation Affected Current Income Tax Brackets?
The IRS has changed 2022 tax brackets to include higher income ranges pushed into lower brackets to adjust for inflation, although tax rates associated with brackets will not change from 10%, 12%, 22%, 24%, 32%, 35%, and 37%, respectively. For example, single filers making $41,776 to $89,075 will be in the 22% tax bracket, while in 2021, the range went from $40,526 to $86,375. This means if you make $41,000, you’ll be moved from the 22% bracket to the 12% bracket in 2022.
Tax Bracket & Deduction Changes for 2022
According to the IRS, for single-filing and married people, the upper tax thresholds have increased in 2022, pushing higher incomes into lower brackets. The same can be observed with married-filing-jointly and head of household brackets. For single filers and married people filing separately, standard deductions have increased by $400, and for married couples the standard deduction is up $800. For head of household filers, the standard deduction has risen by $600.
Tax Filing Resources
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