The Internal Revenue Service (IRS) has recently shared its annual inflation adjustments for various tax policies, along with changes stemming from the One Big Beautiful Bill Act (OBBBA). These adjustments mainly affect the upcoming tax year of 2026.
For most taxpayers, the standard deduction is set to increase to $16,100 for individuals and $32,200 for married couples filing jointly. This is an increase from $15,750 and $31,500 in the previous year. These changes aim to support families and individuals facing rising costs.
The IRS also updated its marginal tax brackets, adjusting income thresholds for various tax rates to reflect inflation. The top tax rate remains at 37%, applicable to individuals with incomes over $640,600 and married couples earning above $768,700. Other tax brackets include:
– 35% for incomes over $256,225 (individual) and $512,450 (married);
– 32% for incomes over $201,775 (individual) and $403,550 (married);
– 24% for incomes over $105,700 (individual) and $211,400 (married);
– 22% for incomes over $50,400 (individual) and $100,800 (married);
– 12% for incomes over $12,400 (individual) and $24,800 (married);
– 10% for incomes of $12,400 or less (individual) and $24,800 or less (married).
Another important change under the OBBBA is the increase in the estate tax exclusion, which will be set at $15 million for individuals who pass away in 2026, up from the current limit of $13.99 million. Additionally, the adoption tax credit is rising to $17,670 for 2026, providing more support for families welcoming new members.
For taxpayers with children, the earned income tax credit is set to increase to a maximum of $8,231 for qualifying families with three or more children. The increase in these credits reflects a recognition of the financial challenges families often face.
Furthermore, the increase of the employer-provided childcare tax credit from $150,000 to $500,000 is significant, allowing businesses to better support their employees.
The IRS also emphasizes its aim to prevent “bracket creep”—a situation where taxpayers inadvertently move into higher tax brackets due to inflation without a real increase in their purchasing power.
Amid these changes, the annual exclusion for gifts will remain steady at $19,000 for 2026. Importantly, certain tax provisions previously indexed for inflation will no longer see adjustments, including personal exemptions and itemized deductions, which may reflect a more conservative approach to tax policy.
The IRS’s adjustments highlight efforts to adapt the tax system to changing economic realities while still advocating for taxpayers and families. As we look ahead, these changes could play a critical role in shaping the financial landscape for Americans.
