IRs Inflation adjustments for tax year 2026: what you need to know

The IRS has announced new inflation adjustments for tax year 2026 — including higher standard deductions, updated tax brackets, and new deductions under the One Big Beautiful Bill. Learn how these changes affect your taxes, refund, and planning for 2027.

Why the 2026 IRS Adjustments Matter

Every year, the IRS updates key tax numbers to reflect inflation — shielding taxpayers from what’s known as “bracket creep.”For tax year 2026 (returns filed in 2027), these adjustments are more important than ever because they combine standard inflation indexing with major policy changes introduced by the One Big Beautiful Bill (OBBB) signed into law in 2025.

These updates impact how much of your income is taxed, how much you can deduct, and what new credits or exemptions you may qualify for.

2026 Standard Deduction Amounts

The standard deduction increases again in 2026 to reflect higher living costs and the extended tax cuts under the OBBB.

Filing Status	2026 Standard Deduction	Increase from 2025
Single / Married Filing Separately	$16,000	+$350
Married Filing Jointly / Surviving Spouse	$32,200	+$700
Head of Household	$24,150	+$525

Additional increases apply for:

• Taxpayers age 65+ or blind: +$1,650 (single) or +$1,350 (married)

• Senior bonus deduction: Up to +$6,000 for qualifying taxpayers (new under OBBB)

2026 Federal Tax Brackets & Rates

The seven federal income tax rates remain the same — 10%, 12%, 22%, 24%, 32%, 35%, and 37% — but the income thresholds move higher to keep up with inflation.

For example:

• The 37% rate now begins around $640,000 for single filers and $770,000 for joint filers.

• The other brackets also shift upward by roughly 2–3%, depending on filing status.

That means if your income didn’t increase much from 2025, you could see slightly lower effective taxes in 2026.

Credits, Exemptions & Deductions

Beyond brackets and deductions, many credits and thresholds will rise as well:

• Earned Income Tax Credit (EITC): Maximum benefit for families with 3+ qualifying children is expected to reach $8,200.

• Alternative Minimum Tax (AMT): Exemption projected at $90,000 (single) and $140,000 (married filing jointly).

• Health & Commuter Benefits:

  • Health FSA contribution limit: $3,400

  • Transit/parking exclusion: $335 per month

• Foreign Earned Income Exclusion: Increases to $133,500.

• Estate & Gift Tax:

  • Estate exclusion climbs to $15 million

  • Annual gift tax exclusion increases to $19,500 per recipient

• Retirement Contributions:

  • 401(k) deferral limit rises to $24,000

  • IRA limit may increase to $7,500

New Tax Law Changes Under the "One Big Beautiful Bill"

Starting in 2025 and continuing into 2026, the One Big Beautiful Bill (OBBB) reshapes the tax landscape. Here are some highlights affecting the 2026 tax year:

1. Tax Cuts Extension: The 2017 tax rates and credits remain in place beyond 2025.

2. SALT Deduction Cap Raised: Temporary increase to $40,000 for joint filers.

3. No Tax on Tips Act: Tip income remains federally tax-free in 2026.

4. Overtime Pay Deduction: Workers may deduct a portion of qualified overtime wages.

5. Car Loan Interest Deduction: Interest up to $10,000 on qualifying personal car loans can now be deducted.

6. Return of Personal Exemptions: Each dependent once again qualifies for a per-person exemption.

Together, these changes mean bigger deductions, higher take-home pay, and expanded relief for working Americans.

Who Benefits Most from the 2026 Adjustments

• Middle-income earners protected from bracket creep

• Seniors benefiting from the bonus deduction

• Families with dependents

• Workers earning tips or frequent overtime pay

• Taxpayers in high-tax states taking advantage of higher SALT caps

  
  

Things to Watch Out For:

• Some new deductions phase out for higher earners

• State income taxes may not align with federal rules

• Over- or under-withholding if you don’t adjust for new thresholds

Smart Tax Planning Tips for 2026

1. Update your W-4 withholding early in 2026.

2. Max out your 401(k) or IRA to take advantage of higher limits.

3. Review itemized deductions vs. standard deduction for the best outcome.

4. Track eligibility for overtime or car-loan interest deductions.

5. Meet with a tax professional before year-end to optimize deductions and credits.

Final Thoughts

The IRS 2026 inflation adjustments bring modest relief but meaningful opportunities — especially when combined with new laws that extend tax cuts and expand deductions.

For most Americans, this means:

• A higher standard deduction

• Larger credit and benefit thresholds

• Potentially lower overall tax liability

  
  

Staying proactive now can help you reduce your 2026 tax bill and maximize your refund when you file in 2027.