IRS Inflation Adjustments Could Mean Bigger Tax Breaks in 2026: Here’s How

The Internal Revenue Service (IRS) has released the 2026 tax year inflation adjustments affecting more than 60 tax provisions, including tax brackets, standard deductions, credits, and exclusions.

These updates reflect rising costs and are designed to keep tax thresholds aligned with inflation. The changes will apply to tax returns filed in 2027.

Full details are outlined in Revenue Procedure 2025-32.
 

Standard Deduction Increases

Under the One, Big, Beautiful Bill (OBBB), the standard deduction sees another boost:

• Single / Married Filing Separately:

  • 2025: $15,750

  • 2026: $16,100

• Married Filing Jointly:

  • 2025: $31,500

  • 2026: $32,200

• Head of Household:

  • 2025: $23,625

  • 2026: $24,150

Updated Tax Brackets for 2026

• 37% for income over $640,600 (single) / $768,700 (joint)

• 35% for income over $256,225 ($512,450 joint)

• 32% for income over $201,775 ($403,550 joint)

• 24% for income over $105,700 ($211,400 joint)

• 22% for income over $50,400 ($100,800 joint)

• 12% for income over $12,400 ($24,800 joint)

• 10% for income below $12,400 (single) / $24,800 (joint)

These bracket shifts are designed to limit bracket creep caused by rising wages and inflation.

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Key Credit & Exemption Adjustments

• Alternative Minimum Tax (AMT): $90,100 exemption for individuals; $140,200 for joint filers.

• Estate Tax Exemption: $15 million (up from $13.99M).

• Adoption Credit: Up to $17,670; refundable portion $5,120.

• Employer-Provided Childcare Tax Credit: Increased cap from $150,000 to $500,000 ($600,000 for small businesses).

Earned Income & Fringe Benefits

• EITC: Maximum credit of $8,231 for families with 3+ children (up from $8,046 in 2025).

• Transportation Fringe Benefit: $340/month (up $15).

• Health FSA Contribution Limit: $3,400 (up $100); carryover max $680.

• MSA Deductibles: Higher minimums and out-of-pocket caps for both self-only and family coverage.

• Foreign Earned Income Exclusion: $132,900 (up from $130,000).

Gift Exclusions & Unchanged Items

• Gift Tax Annual Exclusion: $19,000 (unchanged); $194,000 for non-citizen spouses.

• Personal Exemptions: Remain at $0 under OBBB.

• Itemized Deduction Limitation: Permanently removed except for taxpayers in the top 37% bracket.

• Lifetime Learning Credit Phaseout: Still begins at $80,000 MAGI ($160,000 for joint returns).

What This Means for Taxpayers

These inflation adjustments help prevent taxpayers from being pushed into higher tax brackets purely due to inflation, often called “bracket creep.” The increased deductions and credit thresholds offer some tax relief amid rising living costs.

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