What is the One, Big, Beautiful Bill (OBBB)?
Signed into law on July 4, 2025, the OBBB enacted sweeping changes to U.S. tax code, many with permanent effect, including rate tables, standard deductions, and key credits. (irs.gov)
Inflation Adjustments for Tax Year 2026
Revenue Procedure 2025-32 adjusts more than 60 tax provisions—including tax rate schedules, standard deductions, and major credits—for inflation. (irs.gov) Highlights:
- Standard deduction for single filers (and married filing separately): $15,750 (irs.gov)
- Heads of households: $23,625 (irs.gov)
- Married filing jointly / surviving spouses: $31,500 (irs.gov)
- The child tax credit maximum remains at $2,200 for tax year 2025, but this is adjusted for inflation beginning in 2026. (irs.gov)
Key Planning Takeaways
| Action | Why It Matters | Suggested Timing |
|---|---|---|
| Review withholding & payroll tax notices | Employers will need to adopt revised withholding tables in 2026 to reflect inflation adjustments under OBBB. | Late 2025 / early 2026 (irs.gov) |
| Accelerate deductions or income timing | When inflation adjustments push you into a different bracket, timing bonuses, business expenses, or asset acquisitions before year-end may reduce tax liabilities. | Before December 31, 2025 |
| Evaluate eligibility for refundable portions of credits | OBBB added a refundable portion (up to $5,000, inflation-indexed after 2025) for certain credits under §23(a)(4). Individuals who don't have enough tax liability to use full credits may benefit. (irs.gov) | Use during 2026 tax planning |
Example Scenarios
- Couple, married filing jointly, with $600,000 taxable income: Standard deduction is now $31,500 for 2026. They should verify that deductions and credits are being claimed efficiently. Reducing taxable income just below certain bracket edges saves thousands.
- Single filer earning $65,000: With new standard deduction and brackets, they may stay in 12% bracket longer. A choice to defer income into 2026 or bunch deductions into 2025 could shift their rate exposure.
Pitfalls & Common Missteps
- Forgetting: Inflation adjustments don't apply to all tax thresholds—some definitions and phaseouts are fixed until changed explicitly. (irs.gov)
- Overlooking: The limitation on employee retention credits filed late for Quarters 3 & 4 2021 has tighter rules. Don’t assume prior practices still apply. (irs.gov)
Actionable Checklist
- Update payroll systems with 2026 rate schedules now.
- Withhold or accrue expenses/income with bracket thresholds in mind.
- Review credits such as Child Tax Credit—ensure your tax liability and filing status maximize benefit.
- Consult a tax professional if unusual income (stock sales, overseas income, etc.) could push into complex reporting.
Bottom line: With OBBB in place, inflation-indexed thresholds offer breathing room—but only if you plan proactively. Use late-2025 to position income, deductions, and credits to your best advantage.