Posted on November 12, 2021 by Lasher Holzapfel Sperry & Ebberson
The IRS has announced it will be adjusting income thresholds for federal income tax brackets in 2022.
Typically, the IRS raises thresholds to keep pace with consumer prices, however October’s year-over-year increases of 6.2% were even greater than September’s year-over-year increase of 5.4%, meaning Americans are paying more for everything – including food.
As a result, threshold adjustments will be greater than usual. Recent inflation, due to supply-chain issues, labor shortages and other economic issues, has resulted in reduced purchasing power, leading to the tax break.
While the thresholds are changing, the tax brackets have remained the same, with the lowest at 10% and the highest at 37%.
Under the new thresholds, a married couple will need to earn nearly $20,000 more in 2022 to enter the top tax bracket of 37%.
The IRS will also be increasing the standard deduction to $25,900 for married couples and $12,950 for single taxpayers.
Additional changes include increases to employer-backed Flexible Spending Accounts for health expenses and an extra $1,000 to contribution limits for 401(k)s, 403(b)s and many 457 plans.
The annual gift tax exclusion is also increasing from $15,000 to $16,000 in calendar year 2022.
For additional details on changes and updates, please see the IRS update.