Cost-of-Living Adjustments Tax Brackets and More for 2022

The IRS adjusts more than five dozen items annually for inflation. Due to significant inflation over the past year, the tax brackets and many items have been increased for 2022 (Rev. Proc. 2021-45). The following are highlights of some key changes:

Standard deduction amounts. The standard deduction for joint filers rises to $25,900 (up from $25,100 in 2021). For single taxpayers and married individuals filing separately, the standard deduction in 2022 will be $12,950 (up from $12,550 in 2021), and for heads of households, the standard deduction will be $19,400 (up from $18,800 in 2021). The additional standard deduction amount for age or blindness increases to $1,400 for joint filers (up from $1,350 in 2021) and to $1,750 (up from $1,700 in 2021) for unmarried individuals who are not surviving spouses. The standard deduction for dependents is the greater of $1,150 or the sum of $400 and the dependent’s earned income amount (but not more than the standard deduction amount for the dependent’s filing status).

Gross income of a qualifying relative. To claim head-of-household status or certain other tax breaks based on having a qualifying relative, there is a gross income limit. For 2022, it’s $4,400 (up from $4,300 in 2021).

Health FSAs. The salary reduction contribution limit for 2022 to a health flexible spending account (FSA) increases to $2,850 (up from $2,750 in 2021). The carryover limit will be $570 (up from $550 in 2021). Note: The dependent care FSA, which had been $10,500 in 2021, reverts to the former limit of $5,000, an amount not adjusted annually for inflation.

Transportation fringe benefits. The tax-free monthly amount for parking, transit passes, and vanpooling in 2022 will be $280 (up from $270 in 2021).

Educator deduction. The deduction for classroom expenses and career development of teachers and certain other educators in 2022 is $300 (up from $250 in 2021).

Deduction for student loan interest. The limit on deductible interest remains up to $2,500, which is fixed by law. But the maximum income limits for claiming the above-the-line deduction have increased slightly for married persons filing jointly. The deduction phaseout begins with modified adjusted gross income (MAGI)  over $70,000 if single or $145,000 on a joint return, and is completely phased out if  MAGI is $85,000 or more if single or $175,000 or more on a joint return.

Foreign earned income. The exclusion for foreign earned income from a job or self-employment abroad will be $112,000 in 2022 (up from $108,700 in 2021).

Estate and gift taxes. The annual gift tax exclusion remains for 2022 is $16,000 per beneficiary (up from $15,000 in 2021). The lifetime exemption amount for estates of decedents dying in 2022 will be $12,060,000 (up from $11.7 million in 2021).