A tax bracket is a range of incomes subject to a specific income tax rate. They are part of a progressive tax system that increases with income. However, tax brackets are adjusted every year to adjust to inflation. That means you could end up in a different tax bracket than you were in before, which also depends on your filing status. Here is what you need to know about income tax brackets in 2022 vs 2021.
How It Works
In simple terms, tax brackets tell you the tax rate you need to pay for segments of your income. For example in 2022, if you are single, a tax rate of 10% is for the first $10,275 of your income. The remaining of your income is then taxed at 12%, and so on and so forth. This progressive tax system makes sure that each and every taxpayer has equal rates. Essentially, those with lower incomes will fall into tax brackets with lower tax rates. Similarly, higher incomed individuals would fall under tax brackets of higher tax rates.
2021 Vs 2022 Comparison
The tax rates remained the same in both years, but the tax brackets in 2022 were adjusted for inflation reasons. But the tax bracket ranges also depend on filing status. For example, for single filers in 2022, the 22% tax bracket started at $41,776 and ends at $89,075. But in 2021, it was the range from $40,526 to $86,375, whereas the rate for head-of-household filers remained unchanged. Should you want to delve into specific values, you can always refer to the Internal Revenue Service website.
Pay A Lower Tax Rate
Paying a lower tax rate but still not lowering your income, sounds like a dream doesn’t it? But it isn’t as impossible as it may seem. How to do so, is simply by reducing your taxable income. Instead of having professionals spend hours wracking their brains trying to move you into a lower tax bracket, these are some steps you can take.
One way would be to invest in a traditional IRA account. The money you put in is on a “pre-taxed” basis, so whatever you put in is not counted as income, of course to a certain limit. Not only can it be a way to save up for retirement, but you are also reducing your taxable income. What a way to kill two birds with one stone!
You should also use any deductions you’re entitled to claim to your advantage. Always pick itemized deductions instead of standard ones, so you benefit the most from them.
These are just some of the considerations to take, but it is always advisable to seek professional financial help to find out more about income tax reduction.
The Bottom Line
It is important to plan ahead for your next federal income tax return. This way, you won’t end up in a frenzy worrying about finances. Your finance is in your hands, so always stay updated. This way, you will be on the path to financial stability.
