Welcome to our latest tax-update newsletter! The IRS has just released the inflation-adjusted figures for tax year 2026, incorporating significant amendments from the One Big Beautiful Bill (OBBB). These adjustments affect many familiar tax provisions — from standard deductions to credits, exclusions, and phase-outs. In this issue, we’ll walk through the major changes, highlight what remains unchanged, and offer practical tips for taxpayers and tax professionals preparing for the 2027 filing season.
What’s New: Highlights of the 2026 Adjustments
➞ Standard Deduction Increases
One of the most direct benefits to many taxpayers is the increase in standard deductions:
- Married couples filing jointly: $32,200
- Single / married filing separately: $16,100
- Head of household: $24,150
These increases reflect indexing for inflation plus changes under OBBB.
➞ Tax Rate Brackets & Marginal Rates
While the top marginal rate remains 37%, the income thresholds for each bracket have been adjusted upward to reflect inflation. Key thresholds include:
- 35%: over $256,225 (single) / $512,450 (married)
- 32%: over $201,775 (single) / $403,550 (married)
- 24%: over $105,700 (single) / $211,400 (married)
- And so on down to the 10% bracket for the lowest incomes.
➞ Alternative Minimum Tax (AMT) Exemption
The exemption amounts under the AMT are also rising:
- For unmarried individuals: $90,100, with phase-out beginning at $500,000
- For married filing jointly: phase-out begins at $1,000,000
➞ Estate & Gift Provisions
- Estate Tax Exclusion: Up to $15,000,000 for decedents dying in 2026.
- Annual Gift Exclusion: Remains at $19,000.
- For gifts to a non-citizen spouse, exclusion increases to $194,000.
➞ Credits, Exclusions & Other Key Items
- Adoption Credit: Maximum credit is $17,670, up from $17,280.
- Refundable portion of adoption credit allowed: $5,120
- Employer-Provided Childcare Tax Credit: The cap increases from $150,000 to $500,000 (or $600,000 for eligible small businesses)
- Earned Income Tax Credit (EITC): The maximum for those with three or more qualifying children becomes $8,231 (up from $8,046)
- Qualified Transportation Fringe / Parking: Monthly cap rises to $340
- Health FSAs: Employee salary reduction cap increases to $3,400; carryover limit becomes $680
- Medical Savings Accounts (MSAs): Deductible & out-of-pocket limits are both indexed upward for individual and family coverage.
- Foreign Earned Income Exclusion: Rises to $132,900
What Didn’t Change: Items Not Indexed
Despite many adjustments, some provisions remain static by statute:
- Personal exemptions remain at zero (as eliminated under the Tax Cuts and Jobs Act and made permanent by OBBB).
- Itemized deduction limitations have not been reinstated; the limitation on itemized deductions for high-income taxpayers (37% bracket) endures.
- Lifetime Learning Credit phase-out thresholds (MAGI between $80,000 and $90,000—or $160,000 and $180,000 for joint returns) remain unadjusted.
Practical Impacts & Planning Tips
- Withholding & estimated payments: With higher standard deductions and thresholds, some taxpayers may find themselves in a lower effective bracket. It’s wise to revisit W-4 withholdings or estimated tax plans to avoid overpayment or surprises at filing time.
- Retirement contributions & MSA / HSA planning: If your employer offers health FSAs or MSAs, understanding the updated caps helps maximize tax-favored benefits.
- Estate & gift planning: Higher exclusion amounts offer more flexibility—especially for high-net-worth taxpayers. But with static gift exclusions, strategic use of gifting (especially to noncitizen spouses) still requires foresight.
- Credit optimization: If you’re eligible for EITC or adoption credits, the increased limits may result in larger benefits—be sure to recalculate eligibility and amounts.
- IRAs, education credits, etc: While the Lifetime Learning Credit thresholds weren’t changed, be cautious with tuition credits and education planning—they may not keep pace with inflation.
Conclusion
The IRS’s inflation adjustments for tax year 2026 (to be reflected in 2027 tax filings) integrate both routine indexing and meaningful changes from the One Big Beautiful Bill. Taxpayers and advisors alike should review how these changes affect withholding, credits, deductions, and planning strategies. While many caps and thresholds rise, a few key items remain unchanged—underscoring the importance of tailored tax planning.
