The federal income tax rate has been subject to change over the years. In the 1970s, the highest federal income tax rate was 70% for those individuals with high taxable income -whereas the highest income tax rate in 2017 was 39.6%. 2022 is no exception to change with the passing of the Tax Cuts and Jobs Act (TCJA) in 2017, which temporarily drops the highest income tax rate to 37% from 2018 until 2025. In addition to the fluctuation of tax rates, other aspects of the federal income tax system have changed too -including deductions, credits, and exemptions. Some of these changes are permanent and some expire after 2025.
Although tax rates may continue to shift in the future, it's important to understand how the current federal income tax works and how it might impact your retirement income or financial statement
Income tax rates
In 2022 the federal income tax rates are 10%-37%,
depending an filing status and taxable income. Income
above the $539,900 (single)/$647,850 (married) thresholds is taxed at a rate of 37%, which is down from the pre-TCJA rate of 39.6%.
Capital gains and dividends taxes Income tax rates on long-term capital gains and qualified dividends remain at 0%, 15%, or 20%. However, the thresholds at which those capital gains and dividends rotes apply have changed and have become somewhat complex, as they no longer align with the current tax rates.
The 2022 long-term capital gains tax rate of 0% applies to individuals with ordinary income up to $41,675 and if married, filing jointly up to $83,350. And single filers whose
taxable income exceeds $459,750 or married, filing jointly whose taxable income exceeds $517, 200 are taxed at 20%. For those taxpayers who have marginal income that
falls between those thresholds, their capital gains and dividends are taxed at 15%.
Personal exemptions, standard and itemized deductions, and phase-outs Personal exemptions and phase-outs were eliminated under TCJA. However. the 2022 standard deduction has
been set at $12,950 for individual taxpayers and those married, filing separately and $25,900 for those married, filing jointly. A head of household filer has a standard deduction of $19,400. An additional standard deduction far taxpayers who are age 65 or older, or who are blind, goes up to $1,400, and $1,750 if unmarried and not a surviving spouse. Certain types of itemized deductions have temporarily been removed or are limited.
Rev. Proc. 2021-45.
This update is brought to you by Allianz Life Insurance Company. A PDF tax sheet can be dowloaded showing effective rates for 2022 also as a courtesy from Allianz Life Insurance Company.