Berkowitz Pollack Brant | 2026 Inflation Adjustments to the Tax Laws

By Tony Gutierrez, Director of Tax Services, Berkowitz Pollack Brant

The IRS released the annual inflation adjustments to more than 60 provisions of the tax code. Taxpayers will use these figures when filing their 2026 federal income tax returns in 2027.

Income Tax Rates

The income individuals use to determine how much tax they pay each year increases in 2026. However, unless taxpayers’ income rises significantly from the prior year, they will likely remain in the same tax bracket.

• 37% for income greater than $640,600 ($768,700 for married couples filing jointly)
• 35% for income greater than $256,225 ($512,450 for married couples filing jointly)
• 32% for income greater than $201,775 ($403,550 for married couples filing jointly)
• 24% for income greater than $105,700 ($211,400 for married couples filing jointly)
• 22% for income greater than $50,400 ($100,800 for married couples filing jointly)
• 12% for income greater than over $12,400 ($24,800 for married couples filing jointly)
• 10% for incomes of single individuals with incomes of $12,400 or less ($24,800 for married couples filing jointly).

The marginal income tax rates for trusts and estates also increase in 2026 to:

• 37 percent for income greater than $16,000
• 35 percent for income between $11,701 and $16,000
• 24 percent for income between $3,331 and $11,700
• 10 percent for income of $3,330 or less.

Standard Deduction

The standard deduction for individual taxpayers in 2026 increases to $16,100, up from the $15,750 introduced by the One Big Beautiful Tax Bill Act (OBBBA) in 2025. For married couples filing jointly, the standard deduction rises to $32,200, up from $31,500 in tax year 2025. Taxpayers may use these amounts to automatically reduce their adjusted gross income (AGI) to determine their federal income tax brackets.

With the OBBBA, an additional standard deduction of $6,000 is available for individuals aged 65 and older ($12,000 for married couples filing jointly) in tax years 2025 through 2028. The amount of the deduction decreases when an individual taxpayer’s income reaches $75,000 (or $150,000 for joint filers) and phases out entirely when income exceeds $175,000 (or $350,000 for married filing jointly).

When taxpayers’ allowable expenses exceed the standard deduction in any given year, they may itemize their deductions and further reduce their taxable income and related tax liabilities. These deductible expenses may include student loan interest, qualifying medical and dental costs and up to $40,400 paid toward state and local taxes (SALT) in 2026. However, beginning in 2026, taxpayers in the 37 percent tax bracket will only receive 35 percent of the value of their itemized deductions.

SALT Deduction

While the OBBBA quadrupled the cap on deductions for payments of state and local taxes to $40,000 in 2025 and $40,400 in 2026, it also phases out the value of the deduction when taxpayers’ modified adjusted gross income (MAGI) exceeds $505,000 in 2026. For MAGI above $606,000, the deduction decreases to $10,000.

Federal Gift and Estate Taxes

Individuals who pass away in 2026 may exclude up to $15 million from federal estate tax, up from $13.99 million for estates of decedents who died in 2025. The federal estate tax exemption for married couples filing joint tax returns also increases in 2026 to $30 million from $27.98 million in 2025.

The annual gift tax exclusion in 2026 remains at $19,000. While married couples can continue to gift an unlimited amount to each other tax-free when both spouses are U.S. citizens, gifts to a non-U.S. citizen spouse are limited to $194,000

Alternative Minimum Tax (AMT)

For tax year 2026, the AMT exemption for individuals increases to $90,100 and begins to phase out at $500,000. For married couples filing jointly, the exemption rises to $140,200 and begins to phase out at $1,000,000.

Adoption Credit

The maximum credit taxpayers may receive for qualified child adoption expenses in 2026 is $17,670. The credit begins to phase out when a taxpayer’s modified adjusted gross income (MAGI) exceeds $265,080 and is completely eliminated when MAGI exceeds $305,080.

Kiddie Tax

Minor children younger than 19 and college students younger than age 24 with unearned income (i.e., investment income) of $1,350 in 2026 from sources other than salary and wages will be subject to tax at the same rate as trusts and estates. This is the same amount that was in place in 2025. Parents may elect to include between $1,350 and $13,500 of an eligible child’s unearned income on their individual tax returns in 2026.

Health Care

Employees can contribute up to $3,400 to a health flexible spending cafeteria plan in 2026 via salary deferral. If the plan allows, account owners may carry forward up to $680 in unused amounts to the following year.

Medical Savings Accounts

Taxpayers enrolled in high-deductible Medicare plans offered by private insurers may participate in medical savings accounts (MSAs) that allow for tax-free contributions and withdrawals when used for qualifying medical expenses. To qualify as a high-deductible plan in 2026, the annual deductible for self-only coverage must be at least $2,900 and not more than $4,400, with a maximum out-of-pocket expense of $5,850. For family coverage, the annual deductible must be between $5,850 and $8,750, with a maximum out-of-pocket expense limit of $10,700.

Foreign Earned Income Exclusion

For 2026, the foreign-earned income exclusion increases to $132,900, up from $130,000 in 2025.

Qualified Business Income (QBI) Deduction

The Section 199A deduction for qualified business income (QBI), made permanent under the OBBBA, enables domestic pass-through entities, such as S corporations, LLCs, partnerships and sole proprietorships, to receive a potential tax deduction of as much as 20 percent of their U.S.-source QBI that passes from their businesses to their personal income tax returns. For 2026, the deduction is reduced when taxable income exceeds $201,750 for single filers, or  $403,500 for married couples filing jointly. The deduction is phased out entirely when individual income reaches $276,750, or $553,500 for married couples filing jointly.

The OBBBA also introduces an inflation-adjusted minimum QBI deduction of $400 for taxpayers who have at least $1,000 of QBI from one or more active trade or businesses in which they materially participate.

Compliments of Berkowitz Pollack Brant Advisors + CPAs