The Internal Revenue Service on October 8, 2025, issued Revenue Procedure 2025-32, announcing inflation adjustments for tax year 2026 that include higher standard deductions and updates to more than 60 tax provisions.
For most taxpayers, the headline change is the increased standard deduction. Married couples filing jointly will see their standard deduction rise to $32,200 in 2026, up from $31,500 in 2025. Single filers and those married filing separately will get a standard deduction of $16,100, while heads of households will receive $24,150.
According to the IRS, these annual inflation adjustments are designed to preserve the real value of tax benefits.
The changes are made under provisions of recent federal tax legislation and particularly affect business owners and high-earning professionals who rely on tax-advantaged strategies to manage their overall liabilities.
“These annual adjustments ensure that taxpayers are not penalized by inflation when it comes to basic tax provisions,” according to the IRS announcement. The agency updates these figures each fall to maintain the purchasing power of key tax benefits.
Tax Brackets and Rates Remain Stable
The Internal Revenue Service confirmed that the federal income tax structure will continue to use seven brackets for the 2026 tax year, with rates ranging from 10% to 37%, according to Revenue Procedure 2025-32.
The top rate of 37% applies to single taxpayers earning more than $640,600 and married couples filing jointly with incomes exceeding $768,700.
Other notable bracket thresholds include the 35% rate starting at $256,225 for single filers ($512,450 for joint filers), and the 32% rate beginning at $201,775 for individuals ($403,550 for couples). The lowest 10% rate applies to the first $12,400 of income for single taxpayers and $24,800 for married couples filing jointly.
For taxpayers subject to the Alternative Minimum Tax (AMT), the exemption amount for 2026 increases to $90,100 for single filers and $140,200 for married couples filing jointly, with phaseouts beginning at $500,000 and $1,000,000 of income, respectively, according to the IRS.
Major Changes for Business Owners
Revenue Procedure 2025-32 outlines several business-related inflation adjustments for the 2026 tax year. The most significant change affects the employer-provided childcare tax credit, which increases from $150,000 to $500,000 in eligible expenses. Small businesses may qualify for an increased cap of $600,000, according to the IRS.
The credit applies to qualified expenditures for employer-operated childcare facilities and services provided to employees.
Other business-relevant changes include increases in the health flexible spending arrangement (FSA) contribution limit to $3,400 for 2026, up $100 from 2025. The qualified transportation fringe benefit limit rises to $340 per month, an increase of $15.
Estate Planning and Other Adjustments
The basic exclusion amount for federal estate tax rises to $15 million in 2026, up from $13.99 million in 2025, according to Revenue Procedure 2025-32.
The IRS also increased the foreign earned income exclusion to $132,900 for 2026, compared with $130,000 in 2025. This adjustment allows U.S. citizens working abroad to exclude a portion of their earned income from U.S. taxation.
Several provisions remain unchanged for 2026. The annual gift exclusion stays at $19,000 per recipient, while the limit for gifts to non-citizen spouses remains $194,000. Personal exemptions continue to be eliminated under prior tax legislation.
These adjustments take effect for the 2026 tax year, which applies to returns filed in 2027.