US: IRS announces 2026 tax inflation adjustments, includes amendments from One Big Beautiful Bill

The IRS detailed annual inflation adjustments for the tax year 2026, affecting over 60 tax provisions, including tax rate schedules and other related changes. 

The US Internal Revenue Service (IRS) released Revenue Procedure 2025-32, detailing the annual inflation adjustments for tax year 2026 on 9 October 2025. These updates affect over 60 tax provisions, including tax rate schedules and other related changes, which the IRS has summarised in an official release.

Notable changes under the One, Big, Beautiful Bill

The tax year 2026 adjustments described below generally apply to tax returns filed in 2027. The tax items for tax year 2026 of greatest interest to most taxpayers include the following dollar amounts:

• Standard Deduction. For tax year 2026, the standard deduction increases to USD 32,200 for married couples filing jointly. For single taxpayers and married individuals filing separately, the standard deduction rises to USD 16,100 for the tax year 2026, and for heads of households, the standard deduction will be USD 24,150.

(Additionally, for tax year 2025, the OBBB raises the standard deduction amount to USD 31,500 for married couples filing jointly. For single taxpayers and married individuals filing separately, the standard deduction for 2025 is USD 15,750, and for heads of households, the standard deduction is USD 23,625.)

• Marginal Rates: For tax year 2026, the top tax rate remains 37% for individual single taxpayers with incomes greater than USD 640,600 (USD 768,700 for married couples filing jointly). The other rates are:
  • 35% for incomes over USD 256,225 (USD 512,450 for married couples filing jointly);
  • 32% for incomes over USD 201,775 (USD 403,550 for married couples filing jointly);
  • 24% for incomes over USD 105,700 (USD 211,400 for married couples filing jointly);
  • 22% for incomes over USD 50,400 (USD 100,800 for married couples filing jointly);
  • 12% for incomes over USD 12,400 (USD 24,800 for married couples filing jointly).

The lowest rate is 10% for incomes of single individuals with incomes of USD 12,400 or less (USD 24,800 for married couples filing jointly).

• Alternative Minimum Tax Exemption Amounts. For tax year 2026, the exemption amount for unmarried individuals is USD 90,100 and begins to phase out at USD 500,000 (USD 140,200 for married couples filing jointly for whom the exemption begins to phase out at USD 1,000,000).
• Estate Tax Credits. Estates of decedents who die during 2026 have a basic exclusion amount of USD 15,000,000, up from a total of USD 13,990,000 for estates of decedents who died in 2025.
• Adoption Credits. The maximum credit allowed for adoptions for tax year 2026 is the amount of qualified adoption expenses up to USD 17,670, up from USD 17,280 for 2025. For tax year 2026, the amount of credit that may be refundable is USD 5,120.
• Employer-Provided Childcare Tax Credit. For tax year 2026, the OBBB significantly enhances an important credit for employers; it increases the maximum amount of employer-provided childcare tax credit from USD 150,000 to USD 500,000 (USD 600,000 if the employer is an eligible small business).

Other notable items affected by indexing

• Earned Income Tax Credits. The tax year 2026 maximum Earned Income Tax Credit (EITC) amount is USD 8,231 for qualifying taxpayers who have three or more qualifying children, up from USD 8,046 for tax year 2025. Revenue Procedure 2025-32 contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
• Qualified Transportation Fringe Benefit. For tax year 2026, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to USD 340, up USD 15 from 2025.
• Health Flexible Spending Cafeteria Plans. For tax years beginning in 2026, the dollar limitation for voluntary employee salary reductions for contributions to health flexible spending arrangements increases to USD 3,400, up USD 100 from prior year. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is USD 680, an increase of USD 20 from tax years beginning in 2025.
• Medical Savings Accounts. For tax year 2026, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than USD 2,900, up USD 50 from tax year 2025 – but not more than USD 4,400, an increase of USD 100 from tax year 2025. For self-only coverage, the maximum out-of-pocket expense amount is USD 5,850, up USD 150 from 2025. For tax year 2026, for family coverage, the annual deductible is not less than USD 5,850, up from USD 5,700 for 2025; however, the deductible cannot be more than USD 8,750, up USD 200 from the limit for tax year 2025. For family coverage, the out-of-pocket expense limit is USD 10,700 for tax year 2026, an increase of USD 200 from tax year 2025.
• Foreign Earned Income Exclusion. For tax year 2026, the foreign earned income exclusion is USD 132,900 up from USD 130,000 for tax year 2025.
• Annual Exclusion for Gifts. For tax year 2026, the annual exclusion for gifts remains at USD 19,000. (However, the annual exclusion for gifts to a spouse who is not a citizen of the United States increases to USD 194,000 for calendar year 2026, up USD 4,000 from calendar year 2025.)

Items unaffected by indexing

By statute, certain items that were indexed for inflation in the past are currently not adjusted.

• Personal Exemptions. For tax year 2026, personal exemptions remain at 0, as in tax year 2025. The elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act of 2017 and was made permanent by OBBB. (The personal exemption described here does not include the senior deduction added by OBBB.)
• Itemised Deductions. The limitation on itemised deductions was previously eliminated for tax years 2018 – 2025. The elimination of the limitation was made permanent by OBBB, although it imposes a limitation on the tax benefit from itemised deductions for those taxpayers in the highest tax bracket (37%).
• Lifetime Learning Credits. The modified adjusted gross income (MAGI) amount used to phase out the Lifetime Learning Credit has not been adjusted for inflation for tax years beginning after Dec. 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with MAGI between USD 80,000 and USD 90,000 (USD 160,000 and USD 180,000 for joint returns).