Tax Season is Just Around the Corner
Dec 24th, 2022
We made it, and December is finally here. It’s time for wintry weather…and making year-end tax preparations. To help you prepare, we’ve outlined some of the tax inflation adjustments for the tax year 2022.
Standard Deductions
The standard deduction for married couples filing jointly for the tax year 2022 rises to $25,900 up $800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,950 for 2022, up $400, and for heads of households, the standard deduction will be $19,400 for the tax year 2022, up $600
The additional standard deduction for blind people and senior citizens in 2022 is $1,400 for married individuals and $1,750 for singles and heads of households.
Personal Exemptions
The personal exemption for the tax year 2022 remains at 0, as it was for 2021, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
Income Tax Rates
In 2022 the top tax rate of 37 percent affects individuals whose income exceeds $539,900 ($647,850 for married taxpayers filing a joint return). Marginal tax rates for 2022 are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. As a reminder, while the tax rate structure remained similar to prior years under tax reform (i.e., with seven tax brackets), the tax-bracket thresholds increased significantly for each filing status.
Long-Term Capital Gains
In 2022 tax rates on capital gains and dividends remain the same as 2021 rates (0%, 15%, and a top rate of 20%); however, taxpayers should be reminded that threshold amounts don't correspond to the tax bracket rate structure as they have in the past. For example, taxpayers whose income is below $41,675 for single filers and $83,350 for married filing jointly pay 0% capital gains tax. For individuals whose income is at or above $459,750 ($517,200 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.
Note that some high-earning taxpayers will pay an additional 3.8% tax on their investments.
Short-term Capital Gains Tax Rates
Short-term capital gains are taxed on assets you’ve held for under one year. Unfortunately, short-term capital gains typically incur bigger tax bills, as they’re taxed at your ordinary income rate between 10% and 37%.
Child Tax Credit and Credit for Other Dependents
For 2022, the child tax credit reverts to $2,000 per child, under the age of 17. The refundable portion of the credit is $1,500 so that even if taxpayers do not owe any tax, they can still claim the credit. A $500 nonrefundable credit is also available for dependents who do not qualify for the Child Tax Credit (e.g., dependents age 17 and older).
Earned Income Tax Credit (EITC)
For the tax year 2022, the maximum earned income tax credit (EITC) for low, and moderate-income workers and working families increased to $6,935 (up from $6,728 in 2021). For taxpayers with no qualifying children, the maximum credit is $560.
The maximum income limit (three or more qualifying children) for the EITC increased to $59,187 (up from $57,414 in 2021) for married filing jointly and $53,057 for taxpayers whose filing status is single or head of household. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.
While this outlines some of the important tax changes for the tax year 2022, additional changes in tax law are likely to arise during the year ahead. Don’t hesitate to contact Grants Pass Tax Service if you have any questions or want to get a head start on tax planning.
Sources: Image of Rowena, Oregon by Karsten Winegeart
