As 2026 approaches, it’s important for individuals, families, and businesses to understand how new tax adjustments may affect their financial planning. The Internal Revenue Service recently announced the 2026 annual inflation adjustments for more than 60 tax provisions under Revenue Procedure 2025-32. Many of these adjustments are the result of the One, Big, Beautiful Bill (OBBB) and will take effect for tax returns filed in 2027. Here’s a breakdown of the key changes you should know.
Standard Deduction Increases
One of the most noticeable changes for taxpayers in 2026 is the increase in the standard deduction. Married couples filing jointly can now claim a standard deduction of $32,200, up from $31,500 in 2025. Single taxpayers and married individuals filing separately will see their deduction rise to $16,100 from $15,750. Heads of households will benefit from a standard deduction of $24,150, up from $23,625.
These increases help offset inflation and may influence whether taxpayers choose the standard deduction or itemize. Reviewing your expenses now can help determine the most beneficial approach for your 2026 return.
Marginal Tax Rates
The top federal income tax rate for 2026 remains 37% for single taxpayers earning more than $640,600 and $768,700 for married couples filing jointly. Other marginal rates are structured as follows for single filers: 35% for income over $256,225; 32% over $201,775; 24% over $105,700; 22% over $50,400; 12% over $12,400; and the lowest rate of 10% applies to incomes of $12,400 or less. Married couples filing jointly follow corresponding thresholds.
While the rates themselves remain unchanged, the inflation-adjusted brackets may reduce the impact of “bracket creep” for many taxpayers, keeping more income in lower tax brackets.
Alternative Minimum Tax and Estate Tax
For 2026, the Alternative Minimum Tax (AMT) exemption is $90,100 for unmarried individuals, phasing out at $500,000. Married couples filing jointly have an exemption of $140,200, phasing out at $1,000,000.
Estate planning is also affected. The basic exclusion amount for estates in 2026 increases to $15,000,000, up from $13,990,000 in 2025. These adjustments provide flexibility for high-net-worth individuals and may impact planning strategies for wealth transfer.
Credits and Benefits
Several credits and benefits have seen adjustments for 2026:
- Adoption Credit: The maximum adoption credit is now $17,670, up from $17,280 in 2025, with $5,120 potentially refundable.
- Employer-Provided Childcare Credit: This credit has been significantly enhanced, increasing the maximum from $150,000 to $500,000, or $600,000 for eligible small businesses.
- Earned Income Tax Credit (EITC): The maximum EITC for taxpayers with three or more qualifying children rises to $8,231, up from $8,046.
These changes highlight the importance of reviewing your eligibility for tax credits and benefits in early 2026 to ensure you maximize available savings.
Adjustments to Fringe Benefits and Savings Accounts
Inflation adjustments also affect several commonly used tax-advantaged programs:
- Qualified Transportation Fringe Benefits: Monthly limitations for transit and parking increase to $340.
- Health Flexible Spending Accounts (FSAs): The contribution limit rises to $3,400, with a carryover limit of $680.
- Medical Savings Accounts (MSAs): For self-only coverage, the deductible range is $2,900–$4,400, and the out-of-pocket maximum is $5,850. For family coverage, the deductible range is $5,850–$8,750, and the out-of-pocket maximum is $10,700.
- Foreign Earned Income Exclusion: The exclusion rises to $132,900, up from $130,000 in 2025.
Employers and employees alike should review these adjustments when planning benefits, salary reductions, or health-related accounts for 2026.
Gift and Estate Planning Updates
The annual exclusion for gifts remains at $19,000, while the annual exclusion for gifts to a non-U.S. citizen spouse rises to $194,000, up $4,000 from 2025. These updates provide additional planning opportunities for individuals engaged in intergenerational or cross-border estate planning.
Items Unaffected by Indexing
Not all tax provisions have changed. Personal exemptions remain at zero, consistent with the Tax Cuts and Jobs Act of 2017 and subsequent OBBB updates. Certain itemized deduction limitations and Lifetime Learning Credit phase-out thresholds have also not been adjusted. Taxpayers should keep these limitations in mind when planning deductions and education-related credits.
Planning Ahead for 2026
Understanding these changes now is crucial. Whether you’re an individual taxpayer, a small business owner, or a high-net-worth client, reviewing your 2026 financial strategy can help you take advantage of increased deductions, higher credit limits, and adjusted thresholds. Consulting with a tax professional, such as the team at Tax Advisors of Cary, can ensure that you are prepared for the new year, optimizing your tax position while remaining fully compliant.
Even small adjustments, like contributing to FSAs or planning charitable giving, can have meaningful tax implications when combined with the new 2026 thresholds. Early preparation and strategic planning are key to reducing your overall tax burden and avoiding surprises when filing next year.
Moving Forward
The 2026 tax year brings several notable changes due to inflation adjustments and updates under the One, Big, Beautiful Bill. From higher standard deductions and adjusted tax brackets to enhanced credits for families and employers, these changes are worth understanding before the year ends. By reviewing your financial position and working with a qualified tax professional, you can make informed decisions, maximize credits and deductions, and enter 2026 with confidence.
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