IRS Announces 2026 Inflation Adjustments: Higher Deductions & Credits Ahead

The IRS has released its 2026 inflation adjustments, and there’s good news for taxpayers. Thanks to rising costs and the One Big Beautiful Bill (OBBB), the standard deduction and several tax credits will increase next year.

These changes are meant to help American families and small businesses keep up with inflation — giving taxpayers a little extra breathing room.

For many households, this means a lower taxable income and potentially a higher refund when filing 2026 taxes in early 2027.

What Is the One Big Beautiful Bill (OBBB)?

The OBBB, signed into law earlier this year, reshaped much of the U.S. tax system. It introduced major tax cuts for working families, increased credits, and simplified how deductions are applied.

The new 2026 IRS inflation adjustments build on that foundation by updating key tax numbers to reflect rising living costs.

Inflation adjustments happen every year, but under the OBBB, these changes are larger than usual, reflecting both the inflation rate and new thresholds set by the law.

Key Highlights for Tax Year 2026

Here are the most important updates the IRS announced for 2026:

1. Standard Deduction Increases

The standard deduction — the amount taxpayers can subtract from income without itemizing — is going up again:

• Married couples filing jointly: $32,200 (up from $30,700 in 2025)
• Single filers: $16,100 (up from $15,350 in 2025)
• Head of household: $23,850 (up from $22,900 in 2025)

These increases help protect more of your income from being taxed. For many families, this could mean hundreds of dollars in savings next tax season.

2. Expanded Tax Credits

The IRS also announced higher Child Tax Credit and Earned Income Tax Credit (EITC) limits.

• The Child Tax Credit will increase to $2,300 per child (up from $2,000).
• The EITC thresholds are higher, meaning more low- and middle-income families will qualify.

These changes are especially beneficial for families with children, helping to offset rising living expenses.

3. Bracket Adjustments

The income ranges for each federal tax bracket have been adjusted upward for inflation.

That means some taxpayers will stay in lower tax brackets, even if their income increases slightly. This helps prevent “bracket creep,” where inflation pushes earnings into a higher tax rate without an actual increase in purchasing power.

4. Retirement and Savings Updates

The 401(k) contribution limit is expected to rise to $24,000 (up from $23,000 in 2025). The IRA contribution limit may also rise to $7,500.

These increases allow savers to put more away for retirement tax-free or tax-deferred.

Why These Changes Matter

Inflation can quietly reduce the value of your income. The 2026 IRS adjustments are designed to make sure taxpayers don’t lose out because of higher prices for everyday goods.

Here’s what it means in practice:

• Families will pay less in income tax and receive larger credits.
• Businesses can make better cash-flow decisions knowing deduction limits are higher.
• Retirees can save more in tax-advantaged accounts.

If you plan ahead, these changes can make a noticeable difference in your take-home pay and long-term savings.

How the OBBB Affects 2026 Planning

Under the OBBB, the IRS now adjusts more items automatically for inflation — not just tax brackets. This means taxpayers may see larger deductions, credits, and contribution limits each year.

The goal is to make the tax system fairer and more predictable.

For example, the OBBB also adjusted:

• The Alternative Minimum Tax (AMT) exemption
• The estate and gift tax thresholds
• Certain small business expensing limits under Section 179

These changes will be reflected in the 2026 filing season and beyond.

What Taxpayers Should Do Now

Here’s how you can prepare for these upcoming changes before 2026:

1. Review Your Withholding:
   Make sure your paycheck withholding aligns with the new brackets. Adjusting now can prevent underpayment or surprise tax bills next year.
2. Plan for Higher Deduction Amounts:
   If you’re close to itemizing, run the numbers — the higher standard deduction may make it better to skip itemizing in 2026.
3. Maximize Retirement Savings:
   Take advantage of the new contribution limits in 2026. Setting up automatic increases in your savings plan can help you benefit immediately.
4. Update Tax Planning Strategies:
   If you own a business or rental property, check how the OBBB affects depreciation, deductions, and credits.
5. Talk to Your Tax Advisor:
   Tax laws evolve fast — especially with new legislation like the OBBB. Meeting with your CPA before year-end can help you identify new opportunities to reduce taxes and grow savings.

A Closer Look: Example of the Benefit

Let’s take a quick example:

A married couple earning $85,000 in 2025 would have had a standard deduction of $30,700.

In 2026, that same couple gets a deduction of $32,200, reducing taxable income by an extra $1,500.

At a 12% tax rate, that’s a savings of about $180, not including potential increases in child tax credits. Combined with other inflation adjustments, total savings could easily exceed $500–$1,000 next year.

What This Means for Businesses

Small business owners should also take note of these changes:

• Expensing limits under Section 179 are expected to rise again, making it easier to deduct equipment purchases upfront.
• Mileage rates and meal deduction thresholds may also change, impacting travel-heavy industries.
• Employer tax credits for training and hiring may expand in 2026 under the OBBB.

These updates can improve profitability and cash flow when used strategically.

Preparing Clients for the 2026 Tax Season

If you’re a tax professional or advisor, now is the time to reach out to clients.

Here are a few proactive steps:

• Send a “What’s New for 2026” update email highlighting key changes.
• Offer tax check-up sessions before year-end.
• Use a simple comparison chart (2025 vs. 2026 deductions and credits) to show clients how these adjustments work in their favor.

Helping clients understand these updates not only adds value — it builds trust and long-term relationships.

The Bottom Line

The IRS’s 2026 inflation adjustments under the OBBB law bring meaningful benefits for taxpayers — higher deductions, larger credits, and better savings opportunities.

While inflation has made life more expensive, these updates ensure that tax burdens don’t grow unfairly.

Now’s the perfect time to review your finances, update your tax plan, and prepare for 2026 with confidence.