How inflation will affect your taxes
Every year, the IRS adjusts a long list of tax provisions to account for inflation, and in 2022, those adjustments will be larger than they’ve been in recent years.
If your income remains the same in 2022 as it was in 2021, you could end up with a lower tax bill, according to Wolters Kluwer Tax & Accounting.
Here’s a rundown of some of the most significant adjustments.
Higher standard deduction: Since the Tax Cuts and Jobs Act was enacted in 2018, the majority of taxpayers have claimed the standard deduction. In 2022, the standard deduction will be $12,950 for single taxpayers, up from $12,550 in 2021. Married couples who file jointly will claim $25,900, up from $25,100 in 2021.
If you’re at least 65 years old or blind, you can claim an additional standard deduction of $1,400 in 2022 ($1,750 if you’re claiming the single or head of household filing status). If you’re both 65 or older and blind, the additional deduction amount is doubled.
Expanded tax brackets: As has been the case since 2018, income tax rates will range from 10% to 37%. But every year, the IRS adjusts tax brackets to account for inflation, and those brackets will affect your marginal tax rate — the rate you pay on each additional dollar you earn above a specific threshold.
When tax brackets are adjusted for inflation, you can earn more without having a portion of your income subjected to a higher tax rate. For example, in 2022, a married couple who files jointly can earn up to $178,150 while remaining in the 22% tax bracket, up from $172,750 in 2021.
Estate plans: In 2022, you can give $16,000 ($32,000 if you’re a married couple) to as many people as you like — adult children, siblings, grateful friends — without filing a gift tax return. That’s up from $15,000 ($30,000 for a married couple) in 2021. These gifts will reduce the value of your estate for purposes of calculating the federal estate tax.
That may not seem like much of a concern in 2022, when the amount excluded from estate taxes will rise to $12.06 million, up from $11.7 million in 2021. But the Biden administration has proposed lowering the estate-tax exemption to about $6 million. And even if that proposal fails to get through Congress, the current exemption level is scheduled to “sunset” in 2025 and drop to about $5.5 million. In addition, 12 states and the District of Columbia impose an estate tax, and some have lower exemptions than the federal level.