What’s Changing: IRS Announces 2026 Inflation Adjustments and Updated Standard Deductions

The Internal Revenue Services recently released Rev. Proc. 2025-32 providing the annual inflation adjustments for more than 60 tax provisions for tax year 2026 and increases the standard deduction for tax year 2025 as prescribed by the Reconciliation Bill. The annual inflation adjustments generally apply to tax returns that will be filed in 2027. Among the changes are:

Standard Deduction

For tax year 2025, the standard deduction for married couples filing jointly increases to $31,500, up $1,500 from the figure prior to the OBBBA adjustment. For single taxpayers and married individuals filing separately, the standard deduction rises to $15,750 for tax year 2025, up $750. For heads of household, the standard deduction is $23,625 for tax year 2025, up $1,125.

For tax year 2026, the standard deduction is $32,200 for married couples filing jointly; $16,100 for single taxpayers and married individuals filing separately; and $24,150 for heads of household.

The personal exemption for tax year 2026 remains at $0 (the personal exemption was a provision in the Tax Cuts and Jobs Act of 2017 and was made permanent under the OBBBA.

Tax Rates for Individual Taxpayers

The new tax brackets for 2026 are:

• The top income tax rate remains 37% for individual single taxpayers with incomes greater than $640,600 ($768,700 for married couples filing jointly).
• The other income tax rates for single taxpayers will be:
  
  • 35% for incomes over $256,225 ($512,450 for married couples filing jointly)
  • 32% for incomes over $201,775 ($403,550 for married couples filing jointly)
  • 24% for incomes over $105,700 ($211,400 for married couples filing jointly)
  • 22% for incomes over $50,400 ($100,800 for married couples filing jointly)
  • 12% for incomes over $12,400 ($24,800 for married couples filing jointly)
• The lowest rate is 10% for incomes of single individuals with incomes of $12,400 or less ($24,800 for married couples filing jointly).

Other Adjustments

The estate tax exclusion will increase to $15 million per individual, up from $13.99 million in 2025.

Families pursuing adoption will see a slight increase in the adoption credit, which rises to $17,670, with up to $5,120 of that being refundable.

The alternative minimum tax (AMT) exemption amount is increased for tax year 2026 to $90,100 and begins to phase-out beginning at $500,000 ($140,200 for married couples filing jointly, and the exemption begins to phase out at $1 million).

Employers will benefit from a larger employer provided tax credit, which increases from $150,000 to $500,000, or up to $600,000 for eligible small businesses. Meanwhile, low to moderate income taxpayers with larger families may see relief from a higher Earned Income Tax Credit, which will now cap out at $8,231 for qualified taxpayers with three or more children - up from $8,046 in 2025.

For those with Flexible Spending Accounts, the annual limit will rise to $3,400, while Medical Savings Accounts will feature deductible ranges between $2,900-$4,400 for self-only coverage and $5,850—$8,750 for family coverage. The corresponding out-of-pocket maximums will be $5,850 and $10,700.

Transportation and gift provisions see smaller changes. The monthly qualified transportation fringe benefit will increase slightly to $340, while the annual gift exclusion will remain unchanged at $19,000 per recipient.

Together, these updates reflect the OBBBA’s continued effort to align tax thresholds and benefits with inflation while providing modest relief for working families and small businesses.