Inflation brings big changes in tax brackets

The high inflation amounts that households and businesses have been experiencing this year are likely to lead to larger increases in tax brackets and other inflation-adjusted tax items in 2022.

Bloomberg Tax & Accounting released its 2022 Projected U.S. Tax Rates report Tuesday, estimating the inflation-adjusted amounts in the Tax Code that will eventually come officially from the Internal Revenue Service. The report’s forecasts are based on changes to the Chained Consumer Price Index for All Urban Consumers (C-CPI-U), which were published Tuesday morning by the U.S. Bureau of Labor Statistics. Bloomberg’s projections give tax professionals a sneak peak at the amount of tax savings that their clients may realize thanks to increases in deduction limitations, upward adjustments to tax bracket thresholds, and increases to numerous other key thresholds.

From 2021 to 2022, most inflation-adjusted amounts in the Tax Code, including the threshold dollar amounts for tax rate brackets, are expected to increase by about 3%.

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The following provisions have changed from last year’s report based on recent tax legislation:

  • The disqualified income limitation, for purposes of the §32 earned income tax credit, increased from $2,200 to $10,000.
  • The limitation on the §179D deduction for energy efficient commercial building property is now adjusted for inflation.
  • The phaseout range for the Section 25A Lifetime Learning Credit is no longer adjusted for inflation.

“We predict that inflation-adjusted amounts in the tax code will increase by a greater percentage in 2022 than in prior years due to high U.S. inflation,” said Jean McCormick, vice president of analysis and content at Bloomberg Tax & Accounting, in a statement. “Taxpayers and advisors can use our projections to begin their 2022 tax planning before the IRS publishes the official 2022 inflation-adjusted amounts later this year.”

Individual income tax rate brackets

Bloomberg Tax & Accounting is projecting the following 2022 income ranges for each tax rate bracket for married taxpayers filing jointly and for single taxpayers below. Rate brackets for other filing statuses are included in the full report.

Married filing jointly and surviving spouses

Projected 2022 tax rate bracket income ranges

  • 10% – $0 to $20,550;
  • 12% – $20,550 to $83,550;
  • 22% – $83,550 to $178,150;
  • 24% – $178,150 to $340,100;
  • 32% – $340,100 to $431,900;
  • 35% – $431,900 to $647,850; and,
  • 37% – $647,850 or more.

Unmarried individuals

(other than surviving spouses and heads of households)

Projected 2022 Tax Rate Bracket Income Ranges

  • 10% – $0 to $10,275;
  • 12% – $10,275 to $41,775;
  • 22% – $41,775 to $89,075;
  • 24% – $89,075 to $170,050;
  • 32% – $170,050 to $215,950;
  • 35% – $215,950 to $539,900; and,
  • 37% – $539,900 or more.

Standard deduction

Bloomberg Tax & Accounting has projected the following standard deduction amounts for 2022:

Projected 2022 standard deduction by filing status

  • Married filing jointly/surviving spouses – $25,900;
  • Heads of household – $19,400; and,
  • All other taxpayers – $12,950.

Alternative minimum tax

Projected 2022 AMT exemption amounts are shown below:

Projected 2022 AMT exemption amount by filing status

  • Married filing jointly/surviving spouses – $118,100;
  • Unmarried individuals (other than surviving spouses) – $75,900;
  • Married filing separately – $59,050; and,
  • Estates and trusts – $26,500.

Michael Cohn

Editor-In-Chief, AccountingToday.Com

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