Tax Breaks For Middle-Class Filers
Middle-class tax filers face regular challenges when it comes to their finances. Thankfully, there are a number of tax breaks to help them out.
If you’re wondering how to save money on your taxes, this blog post can help you.
What are the tax rates for middle-class filers?
The federal government uses a progressive tax system, meaning taxpayers are subject to different tax rates depending on their income level. The most recent federal tax rates are as follows:
- 10% on taxable income up to $10,275 for single filers and $20,550 for married couples filing jointly
- 12% on taxable income between $10,276 and $42,775 for single filers and $20,551 to $83,550 for married couples filing jointly
- 22% on taxable income between $42,776 and $89,075 for single filers and $83,551 to $178,150 for married couples filing jointly
- 24% on taxable income between $89,076 and $170,050 for single filers and $178,151 to $340,100 for married couples filing jointly
- 32% on taxable income between $170,051 and $215,950 for single filers and $340,100 to $431,900 for married couples filing jointly
- 35% on taxable income between $215,951 and $539,900 for single filers and $431,901 to $647,850 for married couples filing jointly
- 37% on taxable income over $539,901 for single filers and $647,851 for married couples filing jointly
It's important to note that these tax rates only apply to your taxable income, which is your total income minus any deductions and credits that you're eligible to claim.
Common credits and deductions for middle-class filers
In addition to the federal tax rates, you can take advantage of several credits and deductions that can help lower your overall tax bill. Some of the most common credits and deductions include:
- The Earned Income Tax Credit (EITC): This credit is available to taxpayers with low to moderate income and can be worth up to $6,660 for taxpayers with three or more qualifying children.
- The Child Tax Credit: This credit is worth up to $2,000 per child under the age of 17 and is partially refundable (meaning that a portion of the credit may be refunded to the taxpayer even if they have no tax liability).
- The American Opportunity Tax Credit: This credit is worth up to $2,500 per eligible student, and is available to taxpayers paying for college expenses.
- The Saver's Credit: This credit is worth up to $1,000 for individuals and $2,000 for married couples filing jointly and is available to taxpayers who make contributions to a retirement account, such as an IRA or 401(k).
- Standard Deduction: This is the amount you can deduct from your taxable income if you do not itemize your deductions. For tax year 2022 standard deduction is $12,950 for single taxpayers and $25,900 for married couples filing jointly
- Itemized Deductions: These are deductions that are allowed for certain expenses like state and local taxes, mortgage interest, and charitable donations.
Can Health Savings Accounts help with taxes?
A Health Savings Account (HSA) is a tax-advantaged savings account that can be used to pay for qualified medical expenses. To be eligible to contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP) and not be covered by any other non-HDHP health plans. For the 2022 tax year, the minimum annual deductible for an HDHP is $1,400 for individuals and $2,800 for families. The maximum out-of-pocket expenses allowed are $7,000 for individuals and $14,000 for families.
The main benefits of an HSA are that contributions to the account are tax-deductible, the money in the account grows tax-free, and withdrawals for qualified medical expenses are tax-free. For 2022, the contribution limit for HSA is $3,600 for individuals and $7,200 for families.
One of the best things about an HSA is that it provides a triple tax advantage: contributions are made pre-tax, grow tax-free, and withdrawals are tax-free if used for qualified medical expenses. This can add to significant savings over time, especially for those anticipating high medical expenses.
Additionally, HSA funds can roll over from year to year, so if you don't use them in one year, they remain available for future medical expenses. Also, once you reach age 65, you can withdraw HSA funds for non-medical expenses without penalty, although you'll have to pay taxes on the withdrawal.
How can Taxfyle help?
It’s not your responsibility to be a tax expert. But it’s not something you should worry about, because our Tax Pros have you covered.
When you file your taxes with Taxfyle, you don’t need to cram all of the latest tax changes before you file your tax return. We connect you with a qualified accountant that is a tax expert. That means you can spend your tax season free of stress, knowing an expert is filing your tax return.