IRS 2026 Federal Income Tax Brackets Announced: Standard Deduction Raised, New Relief for Seniors

On Thursday, the Internal Revenue Service published the new annual inflation adjustments for over 60 tax provisions, which included income tax brackets, standard deduction, and credits for the 2026 tax year.

The modifications apply to 2026 tax returns filed in 2027. The overhaul is founded on the US President Donald Trump's 'big beautiful bill.'

The IRS raised the income thresholds for the new tax brackets, boosted figures for the estate tax exemption, modified eligibility for the earned income tax credit, and offered some tax relief for seniors.

For tax year 2026, the standard deduction increases to $32,200 from $31,500 in 2025 for married couples filing jointly. For single taxpayers and married individuals filing separately, the deduction rises to $16,100 for tax year 2026 from $15,750 in 2025. Heads of households can also claim a higher standard deduction of $24,150 from $23,625 in the 2025 tax year.

The IRS also raised the income thresholds for each tax bracket. For tax year 2026, the top marginal tax rate remains 37% for couples filing jointly, with earnings $768,700 or more, and for individuals with incomes of $640,600 or above.

The lowest tax rate is 10% for single individuals with earnings of $12,400 or less. The same rate applies to couples filing jointly with combined incomes of $24,800. Here is a breakdown of the marginal tax rate for both individuals and joint filers.

The new tax brackets and standard deductions are expected to boost paycheques and reduce income tax for millions of Americans.

The agency also said that the estates of decedents who pass away during 2026 have a basic exclusion amount of $15 million, up from $13.99 million in 2025.

Meanwhile, the maximum Earned Income Tax Credit (EITC) for tax year 2026 also rose to $8,231 for qualifying families with three or more children from $8,046 for tax year 2025.

The Employer-Provided Childcare Tax Credit for 2026 also got a major boost. A provision in Trump's bill increases the maximum amount of the credit to $500,000 from $150,000. Note that this is an important credit for employers.

Seniors aged 65 and above can claim a new $6,000 federal tax deduction, which could prove a significant break for those who pay taxes on Social Security income. This deduction is on top of the current standard deduction for seniors. Couples where both spouses qualify can claim a total deduction of $12,000. However, the deduction phases out for taxpayers with modified adjusted gross income over $75,000 or $150,000 for joint tax filers.

The IRS is also scrapping taxes on tips, which starts from the 2025 tax year, for which returns will be filed in 2026. The overhaul applies to both cash and electronic tips, and the maximum annual deduction is $25,000, which is available to both itemising and non-itemising taxpayers. However, workers must still report tips for Social Security and Medicare purposes, and the deduction phases out for taxpayers with MAGI of over $150,000 or $300,000 for those filing jointly.

If you have a car loan that originated after 31st December 2024, and use the vehicle for personal use, you can deduct the interest paid on the loan up to $10,000. The benefit is not available to those with MAGI of $100,000 or $200,000 for joint filers. Note that lease payments do not qualify.