IRS Announces 2026 Tax Bracket Increases and Standard Deduction Adjustments

Top marginal rate now applies at $640,600 for individuals and $768,700 for married couples.
Standard deduction increased to $16,100 (single) and $32,200 (joint).

Overview

On October 10, 2025, the Internal Revenue Service (IRS) released its inflation-adjusted tax brackets, standard deduction amounts, and other critical thresholds for the 2026 tax year. These changes are part of the IRS’s annual indexing process, which adjusts key figures across the tax code to reflect the impact of inflation.

The 2026 figures are particularly significant, not only due to ongoing inflationary pressures but also in light of the scheduled sunset of the 2017 Tax Cuts and Jobs Act (TCJA) provisions in 2027. Taxpayers, wealth managers, and corporate advisors should consider these figures as part of year-end planning, trust and estate strategies, and compensation structuring.

2026 Tax Brackets: Key Income Thresholds

The IRS has preserved the existing marginal tax rates — ranging from 10% to 37% — but has increased the income thresholds applicable to each bracket. The most notable adjustment is the increase in the top 37% bracket.

These increases reflect roughly a 5% upward revision from 2025 thresholds, helping to mitigate bracket creep and providing marginal relief for higher-income earners.

Standard Deduction: Higher Baseline for All Filers

The standard deduction will rise as follows in 2026:

These increases will reduce the amount of taxable income for those who do not itemize deductions. However, taxpayers with significant mortgage interest, charitable contributions, or SALT liabilities may still benefit from itemizing.

Long-Term Capital Gains and Qualified Dividends

While the tax rates for long-term capital gains and qualified dividends remain at 0%, 15%, and 20%, the income thresholds at which those rates apply have increased.

• The 15% capital gains rate is expected to apply to income over approximately $47,000 (single) and $94,000 (joint).

• The 20% rate begins around $580,000 (single) and $700,000 (joint), though exact figures are pending confirmation.

High-income investors — particularly those with exposure to concentrated equity positions or alternative investments — should be aware of how realized gains in 2026 may intersect with these updated thresholds.

Estate and Gift Tax Exemption: Final Year Before the Sunset

For 2026, the federal estate and gift tax lifetime exemption is expected to rise to approximately $14.4 million per individual, or $28.8 million per married couple.

This is the final full year before the scheduled reduction of the exemption to pre-TCJA levels (approximately $7 million per individual, indexed for inflation) in 2027. Individuals with taxable estates should consider whether to accelerate lifetime gifts or utilize other planning vehicles to fully capture the 2026 exemption.

Earned Income Tax Credit and Other Indexed Benefits

The IRS has also adjusted various tax credits and limits, including:

• Earned Income Tax Credit (EITC): Increased for low-to-moderate-income workers with dependents. Estimated maximum of $8,150 for single filers with three or more children.

• Foreign Earned Income Exclusion: Expected to rise to over $130,000 (final figure pending).

• Annual Gift Tax Exclusion: May rise to $19,000 per recipient.

While these thresholds are less relevant to high-income households, they are important for comprehensive advisory firms managing clients across income brackets.

Strategic Considerations for Taxpayers and Advisors

1. Bracket Management and Timing of Income

High earners may benefit from strategies that defer income or accelerate deductions into the 2025 tax year. Installment sales, deferred compensation arrangements, and Roth IRA conversions should be carefully evaluated.

2. Capital Gains Harvesting or Avoidance

Clients should review portfolios to determine whether realizing gains in 2026 makes sense under the revised thresholds, especially in light of potential tax increases post-2026.

3. Charitable Planning and Itemization Thresholds

With a higher standard deduction, fewer taxpayers are expected to itemize. Those engaging in significant charitable giving should consider donor-advised funds or bunching contributions to maximize deductibility.

4. Estate Planning and Use of Lifetime Exemptions

For families with substantial estates, the 2026 exemption increase may represent the final window of opportunity for large-scale wealth transfers under current law. Spousal Lifetime Access Trusts (SLATs), GRATs, and other irrevocable structures should be evaluated now.

In conclusion, strategic tax planning is crucial for maximizing benefits under current laws, especially with upcoming changes in 2026.

The IRS’s release of the 2026 tax brackets and deduction thresholds is a routine but important signal in the annual financial planning calendar. This year, the changes take on added significance due to their positioning ahead of the anticipated 2027 tax code reset.

Wealth planning is no longer an annual exercise; it is a multi-year strategic endeavor. With 2026 as a potential high-water mark for many planning thresholds, advisors and clients alike should be acting now, not later.

About OZM Consultancy

At OZM Consultancy, we provide cross-border tax planning and strategic advisory services to entrepreneurs, private clients, and global firms operating between the U.S., Turkey, and the EU. Our team of licensed professionals, including CPAs and international tax experts, specializes in high-impact planning at the intersection of domestic law and international opportunity.

To discuss how the 2026 IRS changes may impact your portfolio, compensation structure, or estate plan, contact us for a private consultation.

info@ozmconsultancy.com