The Internal Revenue Service (IRS) announced an increase in federal income tax brackets and in standard deductions for the upcoming year 2022 amidst rising inflation.
The Consumer Price Index (CPI) increased by 6.2% in October in comparison to the previous year, recording the highest jump in more than 30 years.
As prices are increasing continuously, the IRS has increased the income threshold points for every bracket for the year 2022.
Those earning between $0 to $10,275 will have to pay 10% tax on their income.
There are total seven federal income tax rates for different income brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
The top income tax rate of 37% will hit taxpayers with income more than $539,900 for single filers and income more than $647,850 for married couples filing jointly.
The threshold limit for the standard deduction, which is claimed by most taxpayers, is also increased for 2022. It is increased to $12,950 for single filers and $25,900 for married couples filing jointly. It is increased by $400 for single filers and for married couples or joint filers it is increased by $800.
The IRS also made changes in alternative minimum tax (AMT), an increased estate tax exemption, and a parallel system for higher earners.
Moreover, there’s an increase for the earned income tax credit, higher flexible spending account limits, a write-off for low- to moderately earning families, among other changes.
Workers can save more up to 401(k) plans in 2022.
There will not be a higher threshold limit for retirement accounts of individuals.
