2026 Tax Brackets: IRS Makes Inflation Adjustments
Key Points – 2026 Tax Brackets: IRS Makes Inflation Adjustments
- 2026 Tax Brackets and Standard Deductions
- Other Tax Provisions for 2026
- Assessing the Impact of the Big Beautiful Bill
- 5-Minute Read
IRS Makes Inflation Adjustments for 2026 Tax Brackets
The IRS has made a lot of headlines over the past week. Just one day after it was announced that nearly half of its workers would be furloughed due the ongoing government shutdown, the IRS announced several inflation adjustments for the 2026 tax year on Thursday, October 9.1,2 Among them were 2026 federal income tax brackets, standard deduction levels for 2026, long-term capital gains brackets, and a higher estate and gift tax exemption, just to name a few.
We’ll review the 2026 tax brackets and other annual inflation adjustments shortly, but before we go any further, it’s important to understand that all these changes apply to the 2026 tax year. They won’t apply to your return for the 2025 tax year, which is due on April 15, 2026.
2026 Tax Brackets: New Income Brackets, Same Tax Rates
This time last year, our tax team was preparing for the possibility of higher tax rates in 2026 and beyond. When the One Big Beautiful Bill Act became law on July 4, 2025, the tax rates from the Tax Cuts and Jobs Act were “permanently” extended. However, that doesn’t mean that the TCJA tax rates will be in effect for eternity. Tax rates haven’t been permanent since 1913.3 The TCJA tax rates being permanently extended means that there is currently no date for them to expire.
Before the OBBBA became law, there was a sunset date of December 31, 2025, for the TCJA tax rates. That meant current tax rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%) would have reverted to the pre-TCJA tax rates from 2017 (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%).
2025 Tax Brackets vs. 2026 Tax Brackets
While the tax rates will remain the same in 2026, the IRS makes inflation adjustments to help with avoiding bracket creep, which occurs when taxpayers get bumped up into a higher tax bracket due to inflation instead of increase in income. Compare the tax brackets for 2025 and 2026 below and see where you fall.
2025 Tax Brackets
FIGURE 1 – 2025 Tax Brackets – IRS/NerdWallet4
2026 Tax Brackets
FIGURE 2 – 2026 Tax Brackets – IRS/NerdWallet5
Understanding the Marginal Tax Rate System
As you compare the 2025 and 2026 tax brackets, keep in mind that the United States uses a marginal tax rate system. Let’s review a quick example of a couple that’s married filing jointly and has $210,000 of taxable income to illustrate how it works. In 2025, $210,000 would put the couple at the bottom of the 24% tax bracket. But that doesn’t mean that all $210,000 of their taxable income will be taxed at 24%. Their first $23,850 will be taxed at 10%, their next $73,100 ($96,950 – $23,850) will be taxed at 12%, and their next $109,749 ($206,701 – $96,951) will be taxed at 22%. That means that only the remaining $3,299 will be taxed at 24%.
If that couple has the same income of $210,000 in 2026, they won’t have any of their taxable income taxed at 24% since the top of the 22% bracket will be at $211,401.
2025 vs. 2026 Long-Term Capital Gains Tax Rates
The IRS also announced 2026 long-term capital gains tax brackets on Thursday. Long-term capital gains tax rates remain at 0%, 15%, and 20%, but see Figures 3 and 4 below to see the differences between the 2025 and 2026 long-term capital gains brackets following inflation adjustments.
2025 Long-Term Capital Gains Tax Brackets
FIGURE 3 – 2025 Long-Term Capital Gains Tax Brackets – IRS/Tax Foundation6
2026 Long-Term Capital Gains Tax Brackets
FIGURE 4 – 2026 Long-Term Capital Gains Tax Brackets – IRS/Tax Foundation7
2025 vs. 2026 Standard Deductions
One of the IRS’ other inflation adjustments of 2026 were the standard deduction levels.8 The standard deduction just increased following the OBBBA becoming law and will increase again for the 2026 tax year. See the standard deduction levels for single filers/married filing separately, married filing jointly/surviving spouse, and heads of households for the 2025 and 2026 tax years in Figure 5 below.
FIGURE 5 – Standard Deductions – IRS
Other Key OBBBA Provisions for the 2026 Tax Year
As our Director of Tax Corey Hulstein, CPA, said about OBBBA, “You might think it’s beautiful, you might think it’s ugly, but it’s certainly big.” There is certainly a lot to unpack with OBBBA, but here are a few more key provisions to keep in mind for the 2026 tax year.
The Estate and Gift Tax Exemption
In 2025, the estate and gift tax exemption is $13,990,000 for single filers and $27,980,000 for married couples filing jointly. For the 2026 tax year, that will increase to $15 million for single filers and $30 million for married couples filing jointly.9 The annual exclusion for gifts is $19,000 per individual for the 2025 and 2026 tax years.
Alternative Minimum Tax Exemption
The Alternative Minimum Tax exemption will also increase for the 2026 tax year.10 The exemption amount for single filers is $88,100 to $90,100 from the 2025 to 2026 tax year with an income phaseout starting at $500,000. For married couples filing jointly, it will increase from $137,000 to $140,200 with an income phaseout starting at $1 million.
Tax Credits for Adoptions and Employer-Provided Childcare
There were also new OBBBA provisions regarding the adoption tax credit and employer-provided childcare tax credit that will go into effect for the 2026 tax year.11
The maximum credit for adoptions will increase from $17,280 in 2025 to $17,670 in 2026. And for 2026, up $5,120 of the adoption credit will be refundable.
The employer-provided childcare tax credit will see a much bigger jump from the 2025 tax year to the 2026 tax year, increasing from $150,000 to $500,000. That jumps to $600,000 for employers that qualify as a small business.
Do You Have Any Questions About the 2026 Inflation Adjustments or the Impact of the OBBBA?
Be on the lookout for more content about the 2026 tax brackets and other IRS inflation adjustments as we wrap up 2025 and head into 2026. But just remember that these changes will impact your 2026 tax return which is due on April 15, 2027, not your 2025 tax return that’s due on April 15, 2026.
It’s worth reiterating what Corey said about the OBBBA. No matter how you feel about it, there are many changes that have already gone into effect, some that will begin in 2026, and others that are just temporary provisions that are set to expire in a few years. To learn more about how the OBBBA could impact you, especially from a tax planning perspective, check out some of our recent OBBBA content.
- The One Big Beautiful Bill Act: What You Need to Know
- The Impact of the One Big Beautiful Bill Act on Your Retirement
- New Tax Provisions in the One Big Beautiful Bill Act
- Roth Conversion Strategies Under the Big Beautiful Bill
- Roth Conversion Decisions for 2025
- New Tax Rules from the Big Beautiful Bill Explained
If you’ve always been someone who focuses on paying the least amount possible in taxes on a year-by-year basis, let us show you the potential impact of forward-looking tax planning. What tax planning strategies can we utilize that may help reduce taxation over your lifetime? That truly depends on your unique situation, so start a conversation with our team below so we can get started.
Resources Mentioned in This Article
- 2025 Tax Brackets: IRS Makes Inflation Adjustments
- The One Big Beautiful Bill Act: What You Need to Know
- The Impact of the One Big Beautiful Bill Act on Your Retirement
- What If We Go Back to Old Tax Rates?
- New Tax Provisions in the One Big Beautiful Bill Act
- Gifting and Taxes
- Roth Conversion Strategies Under the Big Beautiful Bill
- New Tax Rules from the Big Beautiful Bill Explained
- Tax Planning: Beyond the Basics
- Roth Conversion Decisions for 2025
Downloads
Other Sources
[2, 8, 9, 10, 11] https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
[3] https://www.irs.gov/newsroom/historical-highlights-of-the-irs
[6] https://taxfoundation.org/data/all/federal/2025-tax-brackets/
[7] https://taxfoundation.org/data/all/federal/2026-tax-brackets/
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The views expressed represent the opinion of Modern Wealth Management a Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.