Federal Taxes in 2022 is a hot topic for many Americans. Last year we saw a huge economic shift and a new President in the White House. Now more than ever, it's vital for Americans to be informed about their financial future.
It's not that hard to tell what's going to happen with Federal Taxes in 2022, but many Americans may not understand the full extent of what this means for them. The following guide will help you understand everything you need to know about Federal Taxes. Let's take a look at what will happen with taxes in 2022.
What are Federal Taxes anyway?
Federal Taxes (also known as income tax) is a fee paid by every American citizen and resident to their government, in order to fund public programs. It's important to keep in mind that it's mandatory (you have to pay federal taxes), and the government will take it from your pay check or bank account if you don't.
Federal Tax Deadlines
If you don't want to pay penalties or interest, then you should pay your taxes well before the deadlines.
The important 2022 Federal Taxes Deadlines are as follows:
Federal Tax Filing Deadline: April 18th, 2022
If you're a US citizen, then you have to file your taxes by April 18th, 2022. Every year this deadline falls on the same date – the 18th of April. If you owe money to the federal government, then you have to make arrangements with the IRS in order to pay your dues before this deadline. If you fail to do so, then you will face interest and penalties on whatever sum you owe. The interest is usually at least 0.5%, but it can increase up to 25% depending on how late you are with your payment.
The Standard Deduction in 2022
Here is the standard deduction list for 2022:
Single, Married Filing Separately: $12,950
Married Filing Jointly & Surviving Spouses: $25,900
Head of Household: $19,400
Additional Standard Deductions
Married Filing Jointly or Married Filing Separately (65 or older OR blind):$1,400
Married Filing Jointly or Married Filing Separately (65 or older AND blind): $2,800
Single or Head of Household (65 or older OR blind): $1,750
Single or Head of Household (65 or older AND blind): $3,500
How does the standard deduction work?
Standard deductions are one of the easiest ways to reduce your taxable income. When you calculate your final tax, this is the first sum that's deducted from your highest amount. For example, if in 2022 you have $10,000 in taxable income and a standard deduction of $25K, then you only pay taxes for $5K. This is because the government takes out the difference between your deduction and your taxable income ($25K – $10K = $15K), and this is your final tax amount.
Standard deductions are usually adjusted every few years by the government, but they make up one of the easiest ways to reduce your taxable income. It's a great way for low-income families who don't owe much tax to reduce their taxable income.
Tax brackets for 2022
Tax brackets are the rates at which people of certain incomes pay their taxes. For example, if you're single and make more than $9K but less than $38K, then you're in the 12% "tax bracket". People who make more than $38K fall into the 22% tax bracket. Here is a list of 2022 tax brackets:
10%: $0 to $10,275
12%: $10,276 to $41,775
22%: $41,776 to $89,075
24%: $89,076 to $170,050
32%: $170,051 to $215,950
35%: $215,951 to $539,900
37%: $539,901 or more
How do tax brackets work?
It's a common misconception that the higher your income is, the more tax you have to pay. This is not always true. Tax brackets give an example of how much tax people pay to depend on their income. There are a lot of other things that determine how much tax you have to pay such as deductions, age, status, etc.
How to use a lower tax bracket and pay a lower federal income tax rate?
If you're getting tired of paying taxes, then the best way to lower your tax rate is by changing your status. For example, if you're married and file jointly (which gives you a 24% federal income tax rate) then try filing separately or as head of household (which has a 25% federal income tax rate). If you've got kids, then you can always lower your tax rate by claiming child tax credits or deductions.
*Keep in mind that these are just the federal tax rates for 2022. This does not include state taxes, local taxes, etc. Federal income tax rates differ from state to state and city to city!
Why did Income tax brackets increase in 2021?
It mostly happens because of inflation. The more expensive things become, the higher your income should be to maintain a decent standard of living. Inflation also dictates that the government increase tax brackets to account for this difference.
In 2022, it's expected that inflation will continue to rise slightly before stabilizing around 2023. This means that incomes will most likely outstrip inflation in 2022 by a significant amount. If this happens, then there's a chance that the IRS will lower tax brackets for 2022.
What can we expect from 2022?
In 2022, it's expected that the economy will grow at a steady rate (slightly over 2%). This means that incomes will most likely increase slightly. With this in mind, tax brackets might go up to keep up with inflation, and the standard of living increases. It's important to check back for these changes in 2022, as they can have a big effect on federal income taxes.