Annual inflation adjustments announced for tax year 2026

The IRS on Thursday provided annual inflation adjustments for more than 60 tax provisions for tax year 2026 and increases to the standard deduction for tax year 2025 as prescribed in H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act (OBBBA).

Rev. Proc. 2025-32 provides details about the adjustments and includes new tax rate tables. The annual inflation adjustments generally apply to tax returns that will be filed in 2027.

For tax year 2025, the standard deduction for married couples filing jointly increases to $31,500, up $1,500 from the figure prior to the OBBBA adjustment. For single taxpayers and married individuals filing separately, the standard deduction rises to $15,750 for tax year 2025, up $750. For heads of household, the standard deduction is $23,625 for tax year 2025, up $1,125.

For tax year 2026, the standard deduction is $32,200 for married couples filing jointly; $16,100 for single taxpayers and married individuals filing separately; and $24,150 for heads of household.

Income rate brackets

For tax year 2026, the top tax rate of 37% applies to single taxpayers with incomes greater than $640,600 ($768,700 for married couples filing jointly).

The other rates are: 

• 35% for incomes over $256,225 ($512,450 for married couples filing jointly).
• 32% for incomes over $201,775 ($403,550 for married couples filing jointly).
• 24% for incomes over $105,700 ($211,400 for married couples filing jointly).
• 22% for incomes over $50,400 ($100,800 for married couples filing jointly).
• 12% for incomes over $12,400 ($24,800 for married couples filing jointly).
• 10% for incomes $12,400 or less ($24,800 or less for married couples filing jointly).

Other adjustments

• The IRS said that for tax year 2026, the alternative minimum tax exemption amount for single taxpayers increases to $90,100 ($70,100 for married individuals filing separately) (from $88,100 in tax year 2025) and begins to phase out at $500,000. For married couples filing jointly, the exemption amount increases to $140,200 (from $137,000 in tax year 2025) and begins to phase out at $1,000,000.
• The maximum earned income tax credit (EITC) for qualifying taxpayers who have three or more qualifying children is $8,231, an increase from $8,046 for tax year 2025. The revenue procedure contains a table providing the maximum EITC amount for other categories, income thresholds, and phaseouts.
• The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking rises to $340, increasing from $325 in tax year 2025.
• The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements rises to $3,400, a $100 increase from the previous year. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount rises to $680, increasing from $660 in tax year 2025.
• For participants who have self-only coverage in a medical savings account, the plan must have an annual deductible of not less than $2,900, up $50 from tax year 2025, but not more than $4,400, up $100 from tax year 2025. For self-only coverage, the maximum out-of-pocket expense amount is $5,850, up $150 from tax year 2025. For family coverage in tax year 2026, the annual deductible must be not less than $5,850, up $150 from tax year 2025; however, the deductible cannot be over $8,750, up $200 from tax year 2025. For family coverage, the out-of-pocket expense limit is $10,700, up $200 from tax year 2025.
• The foreign earned income exclusion increases to $132,900, from $130,000 in tax year 2025.
• Estates of decedents who die during calendar year 2026 have a basic exclusion amount of $15,000,000, a statutory amount included in the OBBBA, increased from $13,990,000 for estates of decedents who die in 2025. Inflation adjustments, based on the $15,000,000 figure, will resume in calendar year 2027.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.