Overview
In October 2025, the IRS released Revenue Procedure 2025-32, detailing inflation adjustments for over 60 tax provisions under the One, Big, Beautiful Bill (OBBB) for tax year 2026. These changes will affect filing in 2027 for most individual and business taxpayers. (irs.gov)
What’s Changing: Highlights
- Standard deductions rise significantly: Married couples filing jointly will see it increase to $32,200, up from $31,500; single individuals and married filing separately to $16,100; heads of household to $24,150. (irs.gov)
- Marginal tax rate brackets shift in tandem, including thresholds for 22%, 24%, 32%, 35%, and 37% brackets. (irs.gov)
- Alternative Minimum Tax (AMT) exemption amounts rise; for unmarried individuals set at $90,100, with phase-outs starting higher. (irs.gov)
- Estate tax exemption moves to $15 million for decedents dying in 2026. (irs.gov)
- Adoption credit increases modestly to $17,670, with a refundable portion of $5,120. (irs.gov)
- Credits and limits for health FSAs, qualified transportation fringe benefits, and foreign earned income exclusions also see upward adjustments. (irs.gov)
Tax Planning Strategies
- Reevaluate withholding now to avoid surprises in 2026 based on updated standard deductions or bracket thresholds.
- Time major expenses or income shifts—if you're expecting large medical expenses, eligible fringe benefits, or foreign income gains—structure timing to maximize benefit under new limits.
- Estate planning advisors and executors should consider the raised exemption when trimming wealth transfer strategies or gifting plans.
- Employers can review benefits like FSAs and childcare credits to ensure they're maximizing increased thresholds.
Real-Life Example
Jane and Tom, married filing jointly, currently take a standard deduction of $31,500 in TY 2025. Thankful for the increased $32,200 deduction for TY 2026, they'll save taxes due on the portion of income that previously fell just above $31,500. Also, Tom can increase contributions to a health flexible spending account up to the new $3,400 limit—if used fully, this offsets additional taxes by shifting income into pre-tax benefits.
Action Steps Now
- Estimate your 2026 taxable income — apply new thresholds to see where you might be pushed into a higher bracket.
- Determine whether itemizing or taking the standard deduction is optimal under your situation.
- If expecting adoption expenses in 2026, plan early to take full credit.
- Business owners should ensure benefits and deductions align with the raised limits (transportation benefits, FSAs).
Conclusion
The inflation adjustments under OBBB will affect many taxpayers, from individuals to families to businesses. Being aware of these shifts—and adjusting your planning accordingly—can help reduce surprise tax liabilities and maximize available deductions and credits.