IRS provides tax inflation adjustments for tax year 2022

"The Internal Revenue Service today announced the tax year 2022 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2021-45 PDF provides details about these annual adjustments.

Highlights of changes in Revenue Procedure 2021-45:

The tax year 2022 adjustments described below generally apply to tax returns filed in 2023.

The tax items for tax year 2022 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married couples filing jointly for 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 tax year 2022, up $600.
   
• The personal exemption for 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. 
   
• Marginal Rates: For tax year 2022, the top tax rate remains 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly).

  The other rates are:
  35%, for incomes over $215,950 ($431,900 for married couples filing jointly);
  32% for incomes over $170,050 ($340,100 for married couples filing jointly);
  24% for incomes over $89,075 ($178,150 for married couples filing jointly);
  22% for incomes over $41,775 ($83,550 for married couples filing jointly);
  12% for incomes over $10,275 ($20,550 for married couples filing jointly).
  The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).
   

• For 2022, as in 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
   
• The Alternative Minimum Tax exemption amount for tax year 2022 is $75,900 and begins to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption begins to phase out at $1,079,800). The 2021 exemption amount was $73,600 and began to phase out at $523,600 ($114,600 for married couples filing jointly for whom the exemption began to phase out at $1,047,200).
   
• The tax year 2022 maximum Earned Income Tax Credit amount is $6,935 for qualifying taxpayers who have three or more qualifying children, up from $6,728 for tax year 2021. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
   
• For tax year 2022, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $280.
   
• For the taxable years beginning in 2022, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $2,850. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $570, an increase of $20 from taxable years beginning in 2021.
   
• For tax year 2022, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,450, up $50 from tax year 2021; but not more than $3,700, an increase of $100 from tax year 2021. For self-only coverage, the maximum out-of-pocket expense amount is $4,950, up $150 from 2021. For tax year 2022, for family coverage, the annual deductible is not less than $4,950, up from $4,800 in 2021; however, the deductible cannot be more than $7,400, up $250 from the limit for tax year 2021. For family coverage, the out-of-pocket expense limit is $9,050 for tax year 2022, an increase of $300 from tax year 2021.
   
• The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
   
• For tax year 2022, the foreign earned income exclusion is $112,000 up from $108,700 for tax year 2021.
   
• Estates of decedents who die during 2022 have a basic exclusion amount of $12,060,000, up from a total of $11,700,000 for estates of decedents who died in 2021.
   
• The annual exclusion for gifts increases to $16,000 for calendar year 2022, up from $15,000 for calendar year 2021.
   
• 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.."
  Tax inflation adjustments 

Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945

"Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP
increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was
1.7% and real per capita GDP increased annually by less than 1%. There is not conclusive
evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families
increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009
recession. The evidence does not suggest necessarily a relationship between tax policy with
regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is slice.."

Historical Effective Federal Tax Rates: 1979 to 2006
"The following tables update the Congressional Budget Office’s (CBO’s) estimates
of historical effective tax rates—that is, households’ tax liability divided by their
income—for various income categories.1 These new tables incorporate estimates
for an additional calendar year, 2006, for the four largest sources of federal
revenues—individual income taxes, social insurance (payroll) taxes, corporate
income taxes, and excise taxes—as well as the total effective rate for the four
taxes combined. The tables also present average before-tax and after-tax
household income; counts of households; and shares of taxes, income, and
households for each fifth (quintile) of the income distribution and for the top
percentiles of households..."

Historical Effective Federal Tax Rates: 1979 to 2005
"This supplement provides additional data on historical effective federal tax rates as estimated by the Congressional Budget Office (CBO) for the years 1979 through 2005. The data presented in this report show aggregate income and federal taxes, by source, for various income groupings, including a finer disaggregation in the highest income percentile. CBO derives its estimates from Internal Revenue Service data on individual income tax returns, supplemented with information from the Bureau of the Census’s Current Population Survey. Details about CBO’s methodology and additional tables are available on the agency’s Web site in the special collection “Distribution of Federal Taxes.”

Statutory Individual Income Tax Rates and Other Elements of the Tax System: 1988 through 2008
"Statutory individual income tax rates, also referred to as "statutory marginal tax rates," are the rates of tax applicable to the last (marginal) increment of taxable income. Statutory rates play an important role in determining the real marginal tax rates, which affect taxpayers' economic behavior. Developments since enactment of the Tax Reform Act of 1986 (TRA86; P.L. 99-514) are the most relevant to the current state of affairs. Since then, the Omnibus Budget Reconciliation Act of 1990 (OBRA90; P.L. 101-508), the Omnibus Budget Reconciliation Act of 1993 (OBRA93; P.L. 103-66), and the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) and its extensions all changed the marginal income tax rate structure. Under current law, upon expiration of tax cuts enacted in 2001-2007, the rate structure will revert in 2011 to the one set by OBRA93. The six marginal income tax rates for 2008 are 10%, 15%, 25%, 28%, 33%, and 35%..."