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Tax & AccountingNovember 18, 2021

As inflation rises, automatic adjustments for many tax provisions increase

Wolters Kluwer Tax & Accounting looks at the 2022 inflation adjustments announced by the IRS to various tax provisions.

What: With inflation rising in 2021, the tax provisions subject to automatic inflation adjustments in the Internal Revenue Code are also seeing somewhat larger adjustments for 2022 than in recent years. Congress continues to increase the number of tax provisions subject to automatic inflation adjustments. 

Why: Taxpayers with the same income in 2022 as in 2021 will, all other factors being equal, tend to experience a lower tax in 2022 than in 2021 due to these automatic inflation adjustments. Taxpayers can also use many of the inflation adjustment figures to modify their tax planning for 2022. Some of the changes include the following: 

  • Individual tax rates. The top of the ten percent tax rate increases to $10,275 in 2022, an increase of $325 over 2021, as compared to an increase of $75 from 2020 to 2021. The beginning of the top 37 percent tax bracket starts at $647,850 for 2022, an increase of $19,550 over 2021, as compared to an increase of $6,250 from 2020 to 2021
  • Standard deduction. The standard deduction for single taxpayers increases to $12,950 in 2022, an increase of $400 over 2021, as compared to an increase of $150 between 2020 and 2021. The standard deduction for joint filers increases to $25,900 in 2021, an increase of $800 over 2021, as compared to an increase of $300 between 2020 and 2021 
  • Estate tax unified credit. The estate tax unified credit for 2022 is $12,060,000, an increase of $360,000 over 2021, as compared to an increase of $120,000 between 2020 and 2021 
  • 401(k) employee contributions. The elective deferral limit for 401(k) plans increases to $20,500 for 2022, an increase of $1,000 over 2021, as compared to a $500 increase between 2020 and 2021 
  • IRA contribution limits. An exception to the trend of larger adjustments for 2022 is the IRA contribution limit. Due to increases only being made in $500 increments, the IRA contribution limit remains unchanged at $6,500 between 2021 and 2022 after increasing $500 between 2020 and 2021. The start of the phase-out range for deductible contributions for single filers increases to $68,000 for 2022, an increase of $2,000 over 2021, as compared to an increase of $1,000 between 2020 and 2021. The start of the phase-out range for deductible contributions for joint filers increases to $109,000 for 2022, an increase of $4,000 over 2021, as compared to an increase of $1,000 between 2020 and 2021 
  • There are over 60 provisions in the Tax Code subject to inflation adjustments, and an additional set of retirement plan limits subject to a separate inflation adjustment calculation

Who: Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst for Wolters Kluwer Tax & Accounting, can help discuss the inflation adjustments to tax provisions for 2022..

PLEASE NOTE: These materials are designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering tax advice or accounting, legal, tax or other professional service.

Contact: To arrange an interview with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact Bart Lipinski.

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