Update Your Tax Plan for 2022. Here are all the New Brackets and Rates!
The Neighborhood Finance Guy writes about financial literacy topics: Financial Planning, Budgeting, Millennial Money Management, Investment strategies, Tax rate and planning strategies, Retirement tips and more. The goal is to help you make effective decisions and set S.M.A.R.T goals with your money. The information is free but the struggle is not sold separately. And, if you are into this sort of thing; the blog is PLUTUS nominated, I studied Accounting with a Specialization in Taxation, served in the US Marine Corps and now work as an Auditor. I’m also big on Traveling and watching Anime.
Table of Contents
Tax Bracket Rates and 2022 Rate Summary:
- The IRS released the Federal marginal tax rates and income brackets for 2022 on November 10, 2021. The seven tax rates remain unchanged, while the income limits have been adjusted for inflation.
- From it’s inception, the tax code still remains favorable toward Education, Marriage, Investing, having Dependents, starting a Business and owning a Home. Use it!
- Starting from 2022 to 2030, we might see a shift in investors moving toward infrastructure stocks. Big dollars lead to massive contracts, long term gains for investors, and tax benefits associated with wealth.
- The personal exemption for tax year 2022 remains at $0, as it was for 2021. This elimination and limitations on itemized deductions (specifically S.A.L.T.) were provisions in the Tax Cuts and Jobs Act. However as of November 2021, politicians are pushing for a SALT increase of $80,000.
Breaking Down the Standard Tax Deduction and Other Tax Breaks for FY2022
IRS Tax Changes to the Standard Tax Deduction Per Tax Filing Status
The most significant reference that applies across the board is the changes to the Standard Deduction. No matter where you fall on income scale, we all get this for starters. For taxable years starting in 2022, the updated standard deduction amounts under IRS Tax Code §63(c)(2) are as follows:
| Filing Status | 2021 Standard Deduction | 2022 Standard Deduction | Noticeable Changes |
| Married Filing Joint (MFJ) | $25,100 | $25,900 | Up $800 |
| Heads of Household | $18,800 | $19,400 | Up $600 |
| Unmarried Individual (Single) | $12,550 | $12,950 | Up $400 |
Tax Rate Changes to the Earned Income Tax Credit for Dependents
Generally, the Earned Income Tax Credit (EITC) was drafted to help low- to moderate-income workers and families get a tax break per dependent. If you qualify, you can use the credit to reduce the taxes you owe – and maybe increase your refund.
How does this work exactly?
A phaseout applies which reduces the credit depending on your income. Basically if you make too much money, you don’t qualify. For example, you may be able to take the credit if you have three or more qualifying children and you earned less than $53,057 ($59,187, if married filing jointly)(see bold in following table).
| Item | One | Two | Three or More | None |
| Earned Income Amount | $10,980 | $15,410 | $15,410 | $7,320 |
| Maximum Amount of Credit | $3,733 | $6,164 | $6,935 | $560 |
| Threshold Phaseout (Single, Surviving Spouse, or Head of Household) | $20,130 | $20,130 | $20,130 | $9,160 |
| Completed Phaseout (Single, Surviving Spouse, or Head of Household) | $43,492 | $49,399 | $53,057 | $16,480 |
| Threshold Phaseout (Married Filing Jointly) | $26,260 | $26,260 | $26,260 | $15,290 |
| Completed Phaseout (Married Filing Jointly) | $49,622 | $55,529 | $59,187 | $22,610 |
Limitation for Dependents and Adoptions
The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of (1) $1,150, or (2) the sum of $400 and the individual’s earned income.
The maximum credit allowed for adoptions for tax year 2022 is the amount of qualified adoption expenses up to $14,890, up from $14,440 for 2021.
Additional Tax Provisions for the blind and the aged
The additional standard deduction amount for the aged or the blind is +$1,400. Also, the bonus standard deduction amount is increased to $1,750, if the individual is also unmarried and not a surviving spouse.
Education and Credits
The $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for taxpayers with modified adjusted gross income in excess of $70,000 ($145,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income of $85,000 or more ($175,000 or more for joint returns).
For teachers, the amount of the deduction for expenses paid or incurred in connection with books, supplies, computer equipment (including related software and services), and supplementary materials used in the classroom is $300.
So what’s My Tax Brackets?
Here are the new tax rate brackets for 2022, depending on your income and Federal filing status.
| Tax Brackets | Single Tax Payer | Head of Household | Married Filing Jointly |
| 10% | up to $10,275 | Up to $14,650 | Up to $20,550 |
| 12% | $10,276 to $41,775 | $14,651 to $55,900 | $20,551 to $83,550 |
| 22% | $41,776 to $89,075 | $55,901 to $89,050 | $83,551 to $178,150 |
| 24% | $89,076 to $170,050 | $89,051 to $170,050 | $178,151 to $340,100 |
| 32% | $170,051 to $215,950 | $170,051 to $215,950 | $340,101 to $431,900 |
| 35% | $215,951 to $539,900 | $215,951 to $539,900 | $431,901 to $647,850 |
| 37% | Over $539,901 | Over $539,901 | Over $647,851 |
You will have to check up on your state and local taxes as they are likely subject to changes as well. And the IRS also announced the retirement plan contribution changes for 2022.
Final Thoughts on the New Tax Rates
Employer sponsored plan contributions are up $100 to $20,500 per person. Teachers can still take advantage (if available) of the ability to invest in 457b in conjunction with a 401k or 403b. Effectively allowing them to contribute $41,000 tax defer. That’s about $7,500 in tax savings per year.
A single person can avoid about $32,650 if they play their cards right, while a married couple can avoid taxes on north of $65,300. Tax planning is a legit way to keep your hard earned dollars working for you. How?
| Tax Avoidance Vehicle | Single | Married |
| 401k, 403b, 457b contribution limit | $20,500 | $41,000 |
| *Catch Up contribution if over 50 | $6,500 | $13,000 |
| IRA contribution limit | $6,000 | $12,000 |
| *Catch up IRA contribution if over 50 | $1,000 | $1,000 |
| HSA contribution limit | $3,650 | $7,300 |
| *Catch Up HSA contribution | $1,000 | $1,000 |
| Total (excluding catch up for over 50) | $30,150 | $60,300 |
| Total with catch up for over 50 | $38,650 | $77,300 |
As price inflation and income stagnation hit record highs, investing your money is the next best step beyond tax avoidance.
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