It’s the most wonderful time of the year—for tax accountants.
Americans have until April 18th, 2022—or October 17th, 2022 with an extension—to file their 2021 federal income taxes. Residents of Maine and Massachusetts will have until April 19th, 2022 to file their taxes, due to the Patriot’s Day holiday in those states.
It’s also time to start thinking about your 2023 income taxes.
You might say it’s too early to think about 2023 tax brackets and deductions but understanding your tax bracket can help you make all sorts of helpful financial decisions, especially if you’re on the line between two tax brackets.
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The 2022 Standard Deduction
The standard deduction is the portion of your income the IRS allows to be deducted from your taxable income. It ensures only people with income above these thresholds pay income tax. The IRS has increased the 2022 tax brackets in order to adjust for inflation.
There’s an additional standard deduction for people who turned 65 or older in 2020 or who are blind. It’s $1,300 for each married taxpayer or $1,650 for unmarried taxpayers.
The 2021 Standard Deduction
The Tax Cuts and Jobs Act of 2017 more than doubled the amount for standard deductions, meaning more taxpayers than ever have stopped itemizing and are claiming the standard deduction.
But it’s still good to keep track of your tax-deductible expenses in 2022 because if they happen to be higher than your standard deduction you could save some money on your taxes next year.
|Filing Status||Tax Year 2021||Tax Year 2022|
|Married, filing jointly||$25,100||$25,900|
|Married, filing separately||$12,550||$12,950|
|Head of household||$18,800||$19,400|
*Note that for 2021, there is still no personal exemption, due to the Tax Cuts and Jobs Act of 2017.
Remember, even if you take the standard deduction, there are still certain deductions and credits you can claim without itemizing.
How Tax Brackets Work
Currently, there are seven federal income tax brackets in the U.S ranging from 10% to 37%. These rates apply to taxable income, which is your gross income after you’ve subtracted the standard deduction or allowable itemized deductions.
2021 IRS Federal Tax Brackets (for taxes filed in 2022)
For income earned in 2021, the following are the brackets at which each segment of your applicable income are taxed:
|Tax Rate||Single||Married, Filing Jointly||Married, Filing Separately||Head of Househol|
|10%||0 to $9,950||0 to $19,900||0 to $9,950||0 to $14,200|
|12%||$9,951 to $40,525||$19,901 to $81,050||$9,951 to $40,525||$14,201 to $54,200|
|22%||$40,526 to $86,375||$81,051 to $172,750||$40,526 to $86,375||$54,201 to $86,350|
|24%||$86,376 to $164,925||$172,751 to $329,850||$86,376 to $164,925||$86,351 to $164,900|
|32%||$164,926 to $209,425||$329,851 to $418,850||$164,926 to $209,425||$164,901 to $209,400|
|35%||$209,426 to $523,600||$418,851 to $628,300||$209,426 to $314,150||$209,401 to $523,600|
|37%||Over $523,601||Over $628,301||Over $314,151||Over $523,601|
2022 IRS Federal Tax Brackets (for taxes filed in 2023)
For income earned in 2022, the income tax brackets are:
|Tax Rate||Single||Married, Filing Jointly||Married, Filing Separately||Head of Household|
|10%||0 to $10,275||0 to $20,500||0 to $10,275||0 to $10,275|
|12%||$10,276 to $41,775||$20,551 to $83,550||$10,276 to $41,775||$10,276 to $41,775|
|22%||$41,776 to $89,075||$83,551 to $178,150||$$1,776 to $89,075||$41,776 to $89,075|
|24%||$89,076 to $170,050||$178,151 to $340,100||$89,076 to $170,050||$89,076 to $170,050|
|32%||$170,051 to $215,950||$340,101 to $431,900||$170,051 to $215,950||$170,051 to $215,950|
|35%||$215,951 to $539,900||$431,901 to $647,850||$215,951 to $323,925||$215,951 to $539,000|
|37%||Over $539,901||Over $647,851||Over 323,926||Over $539,000|
Tax brackets divide your income into levels that are taxed at different rates. Being in one tax bracket doesn’t mean all of your income is taxed at that rate, every bracket is taxed at its own rate.
For example, let’s suppose you’re a single filer who made $21,000 in 2021. After taking the standard deduction of $12,550, your taxable income is $8,450. That puts you in just the 10% tax bracket.
Related: Tax Season Survival Tips
Calculating Your 2021 Federal Income Tax
To calculate the amount of income tax you owe in each bracket simply multiply your income in that bracket by the applicable rate and you’ll get the amount owed. For the previous example, if your taxable income is $8,450, multiply it by .1 and you’ll see you owe $845 in federal income tax.
As you move into a higher income bracket you add a few more calculations. Say, you’re married, filing jointly with a gross income of $90,000 in 2021. After subtracting the standard deduction of $25,100 your taxable income for 2021 is $64,900. That puts you in the 12% tax bracket.
To calculate your tax bill you’ll pay 10% on the first $19,900 of your income and 12% on the remaining $45,000.
.1 x 19,900= 1,990
.12 x 45,000= 5,400
This makes your total federal income tax bill $7,390. Your standard deduction is determined by your filing status and stays the same regardless of your income. As your income goes up, your tax bracket rates increase accordingly.
These are simple calculations and don’t take into account all the other deductions and credits available to taxpayers.
If I move to a higher tax bracket, is all of my income taxed at a higher rate?
No, if you move to a higher tax bracket, only the income in that bracket gets taxed at the higher rate. Moving to a higher tax bracket can’t hurt you by reducing your post-tax income.
For example, for 2021, the 10% tax bracket applies to all income between $0 and $9,950. Income between $9,950 and $40,525 is taxed at 12%. If you make $20,000 in a year, you only pay 10% tax on your income up to $9,950 and then pay 12% on the amount over $9,550. In this scenario, your total tax bill would be:
($9,950 * 10%) + (($20,000 - $9,950) * 12%) = $2,201
What is a head of household?
Head of household is a special tax filing status. According to the IRS, to qualify as a head of household, you must not be married or not live with your spouse for the majority of the year. You also have to be responsible for at least half of the cost of supporting a qualifying person, typically a child or parent.
How can I get into a lower tax bracket?
You can get into a lower tax bracket by reducing your taxable income. While making less money is one way to do this, it isn’t a strategy most people want to pursue. Other ways to reduce your taxable income include taking deductions or contributing to retirement accounts that let you deduct contributions from your income.
Did the tax brackets change?
Tax law changes frequently. Each year, the income bands for each tax bracket get adjusted for inflation, meaning they usually move up. For example, in 2020, single filers paid 10% on income up to $9,875 but in 2021 paid 10% on incomes up to $9,950.
On occasion, the government changes the number of tax brackets or the tax rate for each bracket. For example, in 2017, the highest tax bracket was taxed at 39.7% but in 2018 the rate dropped to 37%.
What's the difference between a free and paid taxes software?
There are many different programs that can help you file your taxes, some of which are free and some of which cost money.
In general, paid services can be more likely to have a better user experience and be easier to use. They’re also more likely to offer better customer support as they have more money to pay for programmers and support staff.
If you need a lot of help when it comes to doing your taxes, a paid program may be a good choice. Those who are more comfortable with filing taxes may be able to get by with a free program, saving them money.
An estimated 90% of tax filers will take their standard deduction. If you’re planning on having a significant number of expenses this year, keep track of them in case they exceed your standard deduction. You can still make tax-deductible contributions to your IRA for the previous tax year up until April 15th.
Also, keep track of your income throughout the year. Use these tax brackets as a goal to push your income toward the top. Alternatively, if you’re on the edge, look for ways to lower your tax liability like putting more money into a tax-advantaged retirement account or a health savings account. Or take it as a sign that you deserve a vacation.
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