Each year, the IRS adjusts for new tax brackets and the yearly standard deductions that reflect higher prices due to factors like bracket creep or inflation. Bracket creep is when inflation inadvertently thrusts a taxpayer into a higher bracket. Here is an overview of the tax changes and what's new in 2022.
Tax Rates and Tax Brackets
The IRS has seven tax brackets:
| Tax Bracket | Joint | Single |
|---|---|---|
| a) First $ taxed at 10% | 0 | 0 |
| b) 12% | 19,900 | 9,950 |
| c) 22% | 81,050 | 40,525 |
| d) 24% | 172,750 | 86,375 |
| e) 32% | 329,850 | 164,925 |
| f) 35% | 418,850 | 209,425 |
| g) 37% | 628,300 | 523,600 |
Your filing status and taxable income determine your tax bracket. This year, the IRS has increased the income thresholds to factor in inflation.
Checks And Balances On Advance Payments on Child Tax Credit
If your family received any advance payments, you have to compare the advance Child Tax Credit payments received last year and what you can claim on that year's (2021) tax return.
If you received less than you are eligible for, you could claim a credit for the balance of Child Tax Credit on your 2021 tax return. If eligible for less and you received more, you have to repay some of the total amounts in excess you received when you file your tax returns.
This January, the IRS should send Letter 6419 with all taxpayers' tax credit payments from last year. If you did not receive the monthly Child Tax Credit payment in 2021, you are eligible for a lump-sum payment. It's payable when you claim for the Child Tax Credit when filing your 2021 federal income tax return in 2022.
Standard Deduction
A standard deduction decreases your taxable income, and for 2022, this deduction will rise to:
- $12,950 for a married couple filing separately and single filers
- $25,900 for married filers who file jointly
- $19,400 for household heads
- $1,350 for the blind or those over 65 years
- $1,650 for the unmarried and who are not widows or widowers
Earned Income Tax Credit
The EITC, EIC, or Earned Income Credit is a refundable credit for moderate and low-income employees. This amount varies and depends on the number of children and income level. You can also qualify if you have no children.
For 2022, the IRS has set the EIC to $569- $6,935 depending on your income and how many children you have. The reduction of credit available to those with no children will be reduced in 2022.
This reduction comes in the wake of the American Rescue Plan Act, which increased it from $543 to $1502 in 2021, but the Congress has yet to carry it over to the 2022 tax year.
Pass-Through Deduction
Owners and sole proprietors of pass-through businesses qualify for a deduction of 20% to lower their tax rate. This deduction is a portion of the Tax Cuts and Jobs Act.
Conclusion
At the office of Wayne W. Stanforth, CPA, we cater to all taxpayers, from individuals, families, and corporations. Our staff specializes in business consulting, tax and accounting services, retirement planning, estates, and trusts. Visit our website or contact us for more information.
