The April 15th Income Tax filing deadline is steadily approaching. In the meantime, you’re probably busy gathering necessary documents, waiting on tax forms, and generally looking to put your finances in order.
But amid this scurry to get organized for your tax filing, there’s an important factor you might not be aware of: Tax Brackets change every year.
The IRS issues a new slate of minimum and maximum income ranges for each of the 7 tax brackets every year.
This, of course, begs the question: Is your 2022 tax bracket different from your 2021 tax bracket? Here’s a quick overview of the tax bracket changes and some insights on how your taxes may be impacted.
2021 Tax Brackets (Applicable to Income Taxes Due April 15th or October 15th, 2022)
The table below shows a basic breakdown of 2021 tax brackets, separated by filing status: Single, Head of Household, Married Filed Jointly, Married Filing Separately.
2022 Tax Brackets (Applicable to Income Taxes Due April 15th, 2023)
The table below shows a basic breakdown of 2022 tax brackets, separated by filing status: Single, Head of Household, Married Filed Jointly, Married Filing Separately.
What’s The Difference Between the 2021 And 2022 Tax Brackets?
The baseline for all seven tax brackets has increased. For example, the income baseline for the top tax bracket (37%) has risen by $16,300 for single-filer taxpayers in the 2022 tax bracket.
How Are These Differences Likely to Impact Your Income Tax Filing?
The IRS aims to adjust tax brackets according to rising inflation using the average year-over-year “chained” consumer price index (for the 12 months prior, running from August through the following September).
The chained index differs from traditional CPI (Consumer Price Index) in that it rises more slowly, which is an effort to account for consumer response to inflation-driven price increases.
But while these adjustments account for inflationary factors, they don’t address wage increases. Thus, if you received a “cost of living” pay raise to match inflation, you’re likely in the same tax bracket.
If your wage increase exceeds inflation, you may end up in a higher tax bracket.
On the other hand, if, like most American workers in 2022, your wages didn’t keep pace with rising inflation, you’re in a lower tax bracket.
But dropping to a lower tax bracket in this instance isn’t very helpful. Mainly because you spent more (of your annual income) on higher price goods and services. And that means your “real income” actually fell.
So, while you might be in a lower tax bracket, you have less money. Which means if you owe on your 2022 income taxes, you have less money to pay your tax bill.
Have Questions About Your Tax Bracket?
Wondering if you changed tax brackets in 2022 and how that will affect your income tax filing this year?
Get in touch ASAP to schedule a FREE Consultation!