New 2026 IRS Tax Brackets & Major Tax Law Changes

The upcoming 2026 federal income tax season is shaped by two major forces: modest inflation adjustments announced by the IRS and the sweeping permanence brought by the "One Big Beautiful Bill Act" (OBBBA). This landmark legislation made the Tax Cuts and Jobs Act (TCJA) provisions permanent, preventing a massive tax hike for millions. For tax year 2026, you'll see updated income thresholds for all seven tax brackets, an increased standard deduction, and several new, temporary deductions that could significantly impact your tax planning. Understanding these changes, including the crucial new rules for the SALT deduction and estate taxes, is essential for effective financial strategy in 2026 and beyond.

TL;DR: 2026 Tax Landscape in Focus

The federal tax landscape for tax year 2026 is defined by stability and targeted adjustments. The "One Big Beautiful Bill Act" (OBBBA) made the lower tax rates from the 2017 TCJA permanent, preventing a widespread tax increase. On October 9, 2025, the IRS codified the annual inflation adjustments for 2026, which reflect a moderate inflation rate of approximately 2.7%. These adjustments provide modest relief from "bracket creep." Key strategic shifts include a temporary quadrupling of the SALT deduction cap to $40,000, new temporary deductions for seniors and workers with tipped or overtime income, and a permanent increase in the federal estate tax exemption to $15 million per individual. These changes create new opportunities and complexities in tax planning, especially around itemization and income management.

The Legislative Bedrock: Understanding the "One Big Beautiful Bill Act" (OBBBA)

To fully appreciate the tax environment of 2026, it is essential to understand the alternative scenario that was averted. Without the passage of the OBBBA, the individual income tax provisions of the 2017 Tax Cuts and Jobs Act (TCJA) were scheduled to expire on December 31, 2025. This would have triggered a reversion to the pre-TCJA tax code, resulting in a substantial tax increase for most American households.

Averting the "Fiscal Cliff": Visualizing the Averted Tax Hike

Under the projected pre-TCJA law for 2026, the tax system would have reverted to higher rates and narrower brackets. The standard deduction would have been drastically reduced, while the personal exemption would have returned. The Child Tax Credit would have been halved, with much lower income phase-outs. The confluence of these changes would have resulted in higher tax liability for an estimated 62% of tax filers. The following visuals illustrate the significant tax changes that were avoided thanks to the OBBBA.

OBBBA's Core Mandate: Permanence and Stability

The primary achievement of the OBBBA was to make the TCJA's individual income tax framework permanent. By keeping the seven-bracket structure and lower marginal rates intact, the legislation provides a stable and predictable foundation for the tax code. This legislative action, however, comes with fiscal implications, projected to add approximately $3.1 trillion to the federal deficit over the next decade. This stability removes significant uncertainty, allowing financial planners and taxpayers to build stable, long-range forecasts for retirement, education savings, and wealth transfer with a much higher degree of confidence.

The Inflation Adjustment Mechanism: A Closer Look at the Chained CPI-U

The annual adjustments to tax parameters are determined by a specific inflation metric: the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). This metric is designed to be a more accurate measure of cost-of-living changes than the traditional CPI-U because it accounts for "consumer substitution"—the tendency for people to alter their purchasing habits in response to price changes.

Because it accounts for this substitution effect, the C-CPI-U generally reports a lower rate of inflation than the traditional CPI-U. For the 2026 tax year, the inflation adjustment is approximately 2.7%. While the annual adjustment process is intended to prevent bracket creep, the mandated use of the slower-growing C-CPI-U creates a subtle, long-term increase in the real tax burden over time, a form of "stealth tax."

Analysis of 2026 Federal Income Tax Brackets and Rates

The IRS has officially published the inflation-adjusted federal income tax brackets for tax year 2026. The seven marginal tax rates—10%, 12%, 22%, 24%, 32%, 35%, and 37%—remain unchanged. However, the income thresholds for each bracket have been adjusted upward by approximately 2.7% to account for inflation. A notable nuance within the 2026 adjustments is a provision from the OBBBA that provides an extra bit of inflation adjustment for the two lowest tax brackets, delivering targeted relief to lower- and middle-income households.

The Standard Deduction vs. Itemization: A Renewed Strategic Crossroads

Following the annual inflation adjustment, the standard deduction amounts for tax year 2026 have increased. However, key provisions within the OBBBA have created a renewed strategic crossroads, making the analysis of whether to itemize a critical component of tax planning once again.

The 2026 Standard Deduction

• Married Couples Filing Jointly & Surviving Spouses: $32,200
• Single Filers & Married Filing Separately: $16,100
• Heads of Household: $24,150

Taxpayers age 65 or older or who are blind are entitled to an additional standard deduction amount.

The SALT Deduction Game-Changer

The most significant factor reviving itemization is a temporary OBBBA provision that quadruples the cap on the State and Local Tax (SALT) deduction from $10,000 to $40,000 for tax years 2026 through 2029. This change, which primarily benefits those in high-tax states, is subject to an income-based phase-out for incomes above $500,000 for joint filers. This temporary increase creates a powerful incentive for "deduction bunching"—accelerating deductible expenses into the 2026-2029 window to maximize tax benefits.

New and Expanded Deductions: Targeted Relief and Planning Complexities

The OBBBA introduces several new, temporary deductions for specific groups, but they come with strict income limitations, elevating the importance of managing income levels. According to the IRS newsroom, these provisions are effective for tax years 2025 through 2028.

The introduction of these valuable but tightly-phased deductions makes the active management of Modified Adjusted Gross Income (MAGI) a central element of tax planning for many taxpayers.

Key Credits and the Alternative Minimum Tax (AMT)

The 2026 tax code includes inflation adjustments to several critical tax credits and the AMT parameters.

• Earned Income Tax Credit (EITC): The maximum credit for a taxpayer with three or more children will be $8,231.
• Child Tax Credit (CTC): The OBBBA indexes the credit to inflation starting in 2026, ensuring its real value does not erode over time.
• Employer-Provided Childcare Credit: This business credit is massively expanded, with the maximum credit limit jumping from $150,000 to $500,000 (or more for small businesses) and the credit rate increasing from 25% to 40% or more.
• Alternative Minimum Tax (AMT): The exemption amounts are increased to $90,100 for unmarried individuals and $140,200 for married couples filing jointly, shielding more taxpayers from this tax.

Provisions for Wealth Transfer, Investment, and International Filers

The 2026 tax code includes important updates for capital gains, estate and gift taxes, and foreign earned income.

Federal Estate & Gift Tax

Perhaps one of the most consequential long-term provisions of the OBBBA is the permanent increase of the federal estate tax basic exclusion amount to $15,000,000 per individual. A married couple can now shield up to $30 million from federal estate taxes, and this amount will be indexed for inflation. This change marks a "great simplification" of estate planning for most affluent families, shifting the focus from complex tax avoidance to more direct legacy and succession goals.

Other Key Provisions

• Long-Term Capital Gains: The preferential rates of 0%, 15%, and 20% are maintained, with inflation-adjusted income thresholds.
• Annual Gift Exclusions: The annual gift tax exclusion remains unchanged at $19,000 per recipient.
• Foreign Earned Income Exclusion: The maximum exclusion amount increases to $132,900.

Adjustments to Health and Retirement Savings Plans

Inflation adjustments also affect contributions for popular tax-advantaged health plans.

• Health Flexible Spending Arrangements (FSAs): The maximum employee contribution increases to $3,400. If the plan permits, the maximum carryover amount will be $680.
• Health Savings Accounts (HSAs): For family coverage with a high-deductible health plan (HDHP), the minimum annual deductible will be $5,850, and the maximum annual out-of-pocket expense limit will be $10,700.

Economic Context and Strategic Outlook for 2026 and Beyond

The tax changes for 2026 are being implemented in a macroeconomic environment of moderating economic activity and normalizing inflation. The permanence of the TCJA's framework provides long-term planning stability, but the temporary nature of key provisions like the enhanced SALT deduction cap and the new bonus deductions creates a critical, time-limited window of opportunity. Active management of MAGI and strategic use of "deduction bunching" will be key strategies. Proactive, multi-year planning is essential to maximize benefits and prepare for the tax environment after these temporary provisions expire. Tools like the Tax Foundation's interactive tax calculator can be valuable for illustrating the impact of these changes.