What’s Changing for TY 2026
The IRS released Revenue Procedure 2025-32 updating inflation-adjusted tax items for tax year 2026, including standard deductions, marginal tax brackets, AMT exemptions, estate tax thresholds, adoption credits, and more. (irs.gov) Some highlights:
- Standard Deduction for married filing jointly jumps to $32,200 for 2026 (from $31,500 in 2025). (irs.gov)
- Foreign Earned Income Exclusion rises to $132,900. (irs.gov)
- EITC maximum for taxpayers with three+ children increases to $8,231. (irs.gov)
How This Affects Your Tax Planning
Here are ways to use these adjustments to your advantage:
| Item | What to Review | Action Steps |
|---|---|---|
| Withholding allowances | If your income pushes you into a higher bracket in 2026, your current withholding might be too low. | Use updated bracket thresholds from Revenue Procedure to compute your estimated liability and adjust Form W-4 withholding before year-end. |
| Retirement contributions | Limits on 401(k), IRA etc., often adjust annually. Knowing your MAGI limits matters for phase-outs. | Ensure you maximize retirement plan contributions early to protect against tighter phase-outs. |
| Charitable giving & itemized deductions | With increased standard deductions, fewer taxpayers will itemize. | If you give large donations, bunching deductions might help you exceed the standard shift. |
Practical Examples
-
Sarah & John, married filing jointly, expect taxable income of $75,000 in 2026. In 2025, that placed them in the 22% bracket for incomes over $89,450. In 2026, the 22% bracket starts at $100,800, making it easier to stay in a lower bracket. They may delay income or bunch deductions less aggressively.
-
Alex, living and working abroad, now has an exclusion of $132,900 (up from $130,000). If his foreign income is $140,000, he can exclude $132,900, reducing U.S. taxable income to just $7,100.
Actionable Insights
- Review Form W-4 withholdings, especially if your income is near adjusted bracket thresholds.
- Estimate AGI and MAGI now for 2026 to plan charitable, education, and retirement contributions around phase-outs.
- Those filing jointly or using foreign income exclusions should run scenarios comparing 2025 vs 2026 thresholds.
- Keep in mind: many of these adjustments take effect for taxable years beginning in 2026, meaning actions you take in Q1-Q4 of 2026 will matter. (irs.gov)
Common Misconceptions
- “Inflation adjustments magically reduce tax rates.” No—they simply alter the thresholds, not the rates themselves.
- “These apply for 2025 filings.” Most apply for 2026 tax year returns (filed in 2027). Ensure you know the year-of-income rule.
Understanding these adjustments now can guide better financial decisions throughout late 2025 and 2026—helping you avoid surprises and make informed steps to reduce tax burden.