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November 16, 2021

As Inflation Soars, IRS Announces Annual Inflation Adjustments for 2022

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Key Takeaways

  • On November 10, the IRS announced inflation adjustments for 2022 pertaining to a variety of items that may impact your 2022 income tax returns.
  • The IRS makes these inflation adjustments annually for many tax provisions and bases them on the average inflation for the 12-month period ending in August. Thus, these figures are not directly related to the inflation data that the Labor Department also recently released, which shows that inflation is currently affecting all sectors of the economy.

On November 10, the IRS announced inflation adjustments for 2022 pertaining to a variety of items that may impact your 2022 income tax returns.

As a result of the increasingly inflationary pressure experienced in 2021, the adjustments are slightly more substantial than in recent years. In addition to increases to the standard deduction (benefiting those who do not itemize), 2022 income tax bracket thresholds are also increasing. For tax year 2022, the current top individual income tax rate of 37 percent will apply to income exceeding $647,850 for married couples and $539,900 for single taxpayers. These thresholds are increased from $628,300 for married couples and $523,600 for single filers for 2021.

The IRS makes these inflation adjustments annually for many tax provisions and bases them on the average inflation for the 12-month period ending in August. Thus, these figures are not directly related to the inflation data that the Labor Department also recently released, which shows that inflation is currently affecting all sectors of the economy. As such, barring significant slowing in inflation or deflation between now and August 2023, we can expect further robust adjustments next year.

Below we highlight the changes to the most popular limits. While most had a nominal increase, the dependent care FSA limit returns to its usual $5,000, after a one-year-only increase in 2021.

 

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