The Internal Revenue Service revealed that it would adjust federal income tax brackets and deductions in light of rising price levels in the United States.
On Wednesday, the Department of Labor announced that year-over-year inflation for consumer prices reached 6.2% in October — the highest increase in thirty years. Prices for fuel, used vehicles, and food saw significant increases.
Also on Wednesday, the IRS raised income tax rate thresholds for tax year 2022 to prevent “bracket creep” — defined by the Tax Foundation as inflation pushing taxpayers into higher income tax brackets or reducing the value of credits, deductions, and exemptions, resulting in higher taxes without higher income.
Fox Business reports that most of the tax rates rose by 3% — the largest increase in four years.
For individual filers, the brackets are as follows:
- 10% — Income up to $10,275
- 12% — Income between $10,275 and $41,775
- 22% — Income between $41,775 to $89,075
- 24% — Income between $89,075 to $170,050
- 32% — Income between $170,050 to $215,950
- 35% — Income between $215,950 to $539,900
- 37% — Income over $539,900
For joint filers, the brackets are as follows:
- 10% — Income up to $20,550
- 12% — Income between $20,550 to $83,550
- 22% — Income between $83,550 to $178,150
- 24% — Income between $178,150 to $340,100
- 32% — Income between $340,100 to $431,900
- 35% — Income between $431,900 to $647,850
- 37% — Income over $647,850
For individuals, the standard deduction rose by $400 — from $12,550 to $12,950. For married couples, the standard deduction rose by $800 — from $25,100 to $25,900.
After nearly two years of aggressive monetary stimulus, the Federal Reserve revealed last week that it would begin tapering its $120 billion in monthly asset purchases by $15 billion per month. According to a Federal Open Market Committee statement:
In light of the substantial further progress the economy has made toward the Committee’s goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities.
The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
Inflation in the United States — which many economists believe to be heightened by fiscal and monetary stimulus — is having tangible effects on Americans’ living expenses.
According to AAA’s National Average Gas Prices tracker, the price for a tank of regular gas was $3.40 as of October 29; one year ago, the average was $2.14. The price of diesel fuel has also increased significantly — from $2.37 last year to $3.63 today.
The United States Energy Information Administration recently forecasted the largest winter heating price increase in thirteen years; nearly half of American homes dependent upon natural gas will foresee 30% higher expenditures than last year’s winter.