Inflation-adjusted tax provisions: 2026 updates

Every year, the government adjusts certain tax thresholds and deductions for inflation. These changes can have a significant impact on how individuals and businesses plan their finances. For the 2026 tax year, a host of new inflation-adjusted figures have been released, many of which also reflect updates under the One, Big, Beautiful Bill Act (OBBBA). 

Major inflation-adjusted provisions for tax year 2026

Standard deduction increases

For 2026, taxpayers will see modest increases in the standard deduction across all filing statuses. Married couples filing jointly can expect a new standard deduction of $32,200, up from $31,500 in 2025. Single taxpayers and married individuals filing separately will see an increase from $15,750 in 2025 to $16,100 in 2026, while heads of household will experience a jump from $23,625 in 2025 to $24,150 in 2026.

Even these seemingly small changes can add up to considerable tax savings over the course of the year. Taxpayers who are on the cusp of itemizing may want to reassess whether the higher standard deduction could yield a better outcome. Adjusting your withholding or estimated tax payments is also wise if you anticipate lower taxable income as a result of the new deduction figures.

Marginal tax rate thresholds

The OBBBA retains the top tax rate of 37%, which continues to apply to single taxpayers with incomes exceeding $640,600 and married couples filing jointly with incomes over $768,700. Other bracket thresholds have also been nudged upward. For example, the 35% bracket for single filers now begins at $256,225, while those filing jointly see it start at $512,450. Similarly, the 32% bracket starts at $201,775 for singles and $403,550 for joint filers, followed by the 24% bracket beginning at $105,700 for singles (or $211,400 for joint returns). Individuals in the 22% bracket will see it apply to income above $50,400 (or $100,800 for joint filers), and the 12% bracket now begins at $12,400 for individuals and $24,800 for those filing jointly. The lowest bracket of 10% applies to income at or below those same $12,400 and $24,800 thresholds.

While the percentage rates themselves remain unchanged, the upward shift in the bracket boundaries can mean that some portion of your annual income might now be subject to a lower tax rate. Planning strategies could include timing certain deductions or deferring income. For relatively high-income households approaching a bracket change, professional advice can help optimize your overall tax picture.

Alternative Minimum Tax (AMT) exemptions

The AMT system ensures that certain income items are taxed at a minimum level. For 2026, the exemption amount is rising to $90,100 for individuals, phasing out at $500,000. Married couples filing jointly receive a higher exemption of $140,200, which begins phasing out at $1,000,000. 

Estate tax exemption

For the 2026 tax year, the basic exclusion amount for estates increases to $15,000,000, up from $13,990,000 in 2025. This higher estate exemption allows more assets to pass free of federal estate tax, potentially giving families additional tools for long-term planning. 

Adoption credits

Families planning to adopt can benefit from a higher maximum adoption credit in 2026. The allowable credit for qualified adoption expenses now goes up to $17,670, a slight increase from $17,280 the previous year. Notably, up to $5,120 of this credit can be refundable, which may provide extra relief for families who do not typically have a large tax liability to offset. Those going through the adoption process can consider coordinating finalization timelines so that they can maximize the use of this credit.

Employer-provided childcare tax credit

The OBBBA significantly expands the tax credit available to employers who offer childcare benefits to employees, increasing the cap from $150,000 to $500,000. For qualifying small businesses, the limit can go as high as $600,000. 

Earned Income Tax Credit (EITC)

In 2026, the maximum value rises to $8,231 for individuals who have three or more qualifying children, compared to $8,046 in 2025. Because EITC amounts depend on both income level and number of qualifying children, it is essential to review the updated phase-out thresholds to see whether your household still meets the requirements or if you may receive a larger credit this year.

Qualified transportation fringe benefit

The monthly limits for commuter benefits and qualified parking move up to $340, marking a $15 increase from 2025. This adjustment may help employees defray more of their commuting expenses on a pre-tax basis. It is also a good moment for employers offering these programs to confirm their plan documents reflect the updated limits.

Health Flexible Spending Arrangements (FSAs)

For 2026, individuals who leverage FSAs can set aside up to $3,400 in pre-tax funds, which is $100 more than in the prior year. Unused amounts carried over after the plan year can now be as high as $680. If you tend to spend consistently on healthcare costs, a higher annual limit can help shield more of your income from taxes, but be sure not to overfund the account if your projected medical expenses are uncertain.

Medical Savings Accounts (MSAs)

MSA participants will see a slight increase in plan deductibles and out-of-pocket maximums for 2026. For self-only coverage, the deductible must now be between $2,900 and $4,400, while the out-of-pocket limit can go up to $5,850. For family coverage, the deductible range begins at $5,850 and tops out at $8,750, with a $10,700 limit on out-of-pocket expenses. If you rely on an MSA to cover medical costs, it is important to understand these thresholds to tailor your contributions accordingly.

Foreign Earned Income Exclusion (FEIE)

U.S. taxpayers living abroad will see the foreign earned income exclusion tick upward to $132,900, up from $130,000 in 2025. This may slightly reduce your taxable income if you qualify, though eligibility depends on factors such as residence or physical presence tests. Tracking your travels meticulously ensures you meet these tests, keeping you in compliance and free from unwanted tax surprises.

Annual Gift Exclusion

The standard gift exclusion remains at $19,000 for 2026. However, there is a new figure to note for spouses who are not U.S. citizens, with the exclusion for gifts to such spouses moving to $194,000. Since gifting strategies can be complex, especially for couples who maintain citizenships in different countries, it is best to map out a plan that optimizes these thresholds.

Next steps

With these new inflation-adjusted provisions set to take effect for the 2026 tax year, it is an opportune time to review your current financial situation and make any necessary tweaks to your long-term strategy. Even small changes in thresholds and exclusions can produce tangible differences in your taxable income and the credits you can claim. Businesses, too, should consider whether they can leverage expansions in credits such as the employer-provided childcare program.

For more personalized guidance on optimizing your tax strategy for the upcoming tax year, please contact our office.