IRS Announces Higher Standard Deductions and New Tax Brackets to Boost Refunds and Lower Tax Bills

The Internal Revenue Service (IRS) has announced annual inflation adjustments for tax year 2026, affecting more than 60 tax provisions, including tax rate schedules, standard deductions, and other related changes, as detailed in Revenue Procedure 2025-32.

These adjustments, which generally apply to tax returns filed in 2027, reflect inflation and incorporate provisions from recent tax legislation, including references to the “One, Big, Beautiful Bill” (OBBB). The changes are intended to align tax obligations with current economic conditions, providing modest relief to taxpayers through updated thresholds and enhanced credits.

A key adjustment for tax year 2026 is the increase in the standard deduction. For married couples filing jointly, the standard deduction will rise to $32,200, up from $31,500 in 2025 under the OBBB. For single taxpayers and married individuals filing separately, the standard deduction will increase to $16,100, up from $15,750 in 2025. For heads of household, the standard deduction will rise to $24,150, up from $23,625 in 2025.

Another significant adjustment applies to the standard deduction for tax year 2025. For single filers who choose the standard deduction, no tax will be owed on up to $15,750 of income for that year, representing an increase of $750 from the originally announced $15,000. For married couples, the amount increases from the originally announced $30,000 to $31,500, and for heads of household, it rises from the originally announced $22,500 to $23,625.

The IRS has also adjusted marginal tax rates and income brackets for 2026. The top tax rate remains 37% for single taxpayers with incomes over $640,600 and for married couples filing jointly with incomes over $768,700. The other rates are as follows: 35% for incomes over $256,225 ($512,450 for joint filers), 32% for incomes over $201,775 ($403,550 for joint filers), 24% for incomes over $105,700 ($211,400 for joint filers), 22% for incomes over $50,400 ($100,800 for joint filers), and 12% for incomes over $12,400 ($24,800 for joint filers).

The lowest rate of 10% applies to incomes of $12,400 or less for single filers and $24,800 or less for married couples filing jointly. These thresholds reflect inflation adjustments, with 2026 brackets increasing by approximately 2.5% to 3.5% compared to 2025.

Several other tax provisions have also been adjusted for 2026. The Alternative Minimum Tax (AMT) exemption amount increases to $90,100 for unmarried individuals (phasing out at $500,000) and $140,200 for married couples filing jointly (phasing out at $1,000,000). The estate tax basic exclusion amount rises to $15,000,000 for estates of decedents who die in 2026, up from $13,990,000 in 2025.

The adoption credit increases to a maximum of $17,670 for qualified adoption expenses, with a refundable portion of $5,120—up from $17,280 in 2025. The employer-provided childcare tax credit receives a substantial boost under the OBBB, increasing to $500,000 (or $600,000 for eligible small businesses) from $150,000 in 2025.

Additional provisions adjusted for inflation include the Earned Income Tax Credit (EITC), with the maximum credit for taxpayers with three or more qualifying children rising to $8,231 for 2026, up from $8,046 in 2025. The qualified transportation fringe benefit and parking limitation increase to $340 per month, up $15 from 2025.

For health flexible spending arrangements (FSAs), the contribution limit rises to $3,400 for 2026, an increase of $100, with a carryover limit of $680, up $20. For Medical Savings Accounts (MSAs), the 2026 annual deductible for self-only coverage ranges from $2,900 to $4,400, with a maximum out-of-pocket expense of $5,850. For family coverage, the deductible ranges from $5,850 to $8,750, with an out-of-pocket limit of $10,700.

The foreign earned income exclusion increases to $132,900 for 2026, up from $130,000 in 2025. The annual gift exclusion remains at $19,000, while the exclusion for gifts to a non-citizen spouse rises to $194,000, up $4,000 from 2025. Certain provisions remain unaffected by inflation adjustments due to statutory changes.

Personal exemptions remain at $0 for 2026, as their elimination under the Tax Cuts and Jobs Act of 2017 was made permanent by the OBBB. The limitation on itemized deductions—previously eliminated for 2018 through 2025—remains eliminated under the OBBB, although a cap on the tax benefit from itemized deductions applies for taxpayers in the 37% bracket.

The Lifetime Learning Credit phase-out range remains unchanged, applying to taxpayers with modified adjusted gross income (MAGI) between $80,000 and $90,000 ($160,000 to $180,000 for joint returns), with no inflation adjustment since December 31, 2020.