The IRS has officially released Revenue Procedure 2025-32, detailing more than 60 inflation-adjusted tax items for tax year 2026. These annual updates, based on the One Big, Beautiful Bill Act (OBBBA) signed in 2025, impact nearly every taxpayer, from wage earners to business owners and high-net-worth families.
For 2026, many provisions that were once temporary under the 2017 Tax Cuts and Jobs Act (TCJA) have now been made permanent, including the lower individual tax brackets and higher standard deduction. Below, VIP Wealth Advisors breaks down the most important changes, what they mean for taxpayers, and where planning opportunities may exist.
The Big Picture: 2026 Inflation Adjustments
Revenue Procedure 2025-32 modifies prior guidance (Rev. Proc. 2024-40) and sets the official IRS inflation adjustments for 2026. Key highlights include:
- Tax rates stay the same: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
- Income thresholds rise across all brackets to reflect inflation.
- Standard deduction and credit amounts increase modestly, helping offset cost-of-living changes.
- Estate and gift exclusions rise to record levels, extending the window for strategic gifting and wealth transfer.
Let's unpack the most essential sections.
Federal Income Tax Brackets for 2026
Under the OBBBA, the TCJA's individual income tax rates were made permanent. The 2026 brackets reflect those same seven rates, but with higher inflation-adjusted thresholds.
Married Filing Jointly
| Rate | Taxable Income Over | But Not Over | Tax Owed |
|---|---|---|---|
| 10% | $0 | $24,800 | 10% of taxable income |
| 12% | $24,800 | $100,800 | $2,480 + 12% over $24,800 |
| 22% | $100,800 | $211,400 | $11,600 + 22% over $100,800 |
| 24% | $211,400 | $403,550 | $35,932 + 24% over $211,400 |
| 32% | $403,550 | $512,450 | $82,048 + 32% over $403,550 |
| 35% | $512,450 | $768,700 | $116,896 + 35% over $512,450 |
| 37% | $768,700 | — | $206,583.50 + 37% over $768,700 |
(Single, Head of Household, and Married Filing Separately thresholds follow the same structure with proportionate ranges.)
These permanent rates remove the prior “sunset” uncertainty of TCJA-era brackets that were scheduled to expire after 2025. That's welcome stability for long-term income, Roth conversion, and equity compensation planning.
Standard Deduction Increases Again
| Filing Status | 2026 Standard Deduction |
|---|---|
| Married Filing Jointly | $32,200 |
| Head of Household | $24,150 |
| Single or Married Filing Separately | $16,100 |
Additional deduction for aged or blind taxpayers: $1,650 (or $2,050 if unmarried).
Dependents receive the greater of $1,350 or earned income + $450.
This higher standard deduction simplifies filing for many households, but also means fewer taxpayers will itemize. If you're charitably inclined, consider charitable bunching or donor-advised fund strategies to preserve deductions in higher-income years.
Capital Gains and Qualified Dividend Thresholds
| Filing Status | 0% Rate Up To | 15% Rate Up To | 20% Above |
|---|---|---|---|
| Married Filing Jointly | $98,900 | $613,700 | $613,700+ |
| Single | $49,450 | $545,500 | $545,500+ |
| Head of Household | $66,200 | $579,600 | $579,600+ |
| Estates & Trusts | $3,300 | $16,250 | $16,250+ |
Alternative Minimum Tax (AMT) Exemptions
| Filing Status | Exemption | Phaseout Begins | 28% Rate Applies Above |
|---|---|---|---|
| Married Filing Jointly | $140,200 | $1,000,000 | $244,500 |
| Single | $90,100 | $500,000 | $244,500 |
| Married Filing Separately | $70,100 | $500,000 | $122,250 |
| Estates & Trusts | $31,400 | $104,800 | $244,500 |
Key Credit and Deduction Updates
Child Tax Credit
- Maximum credit: $2,200 per qualifying child.
- Refundable portion: up to $1,700.
- The OBBBA made the expanded credit permanent, eliminating prior sunset dates.
Adoption Credit
- Maximum credit: $17,670 per eligible child (same for adoption assistance exclusion).
- Phase-out range: $265,080 to $305,080 of modified AGI.
- Refundable portion: $5,120.
Qualified Business Income (QBI) Deduction (§199A)
Thresholds and phase-in ranges for 2026:
| Filing Status | Threshold | Phase-in Range End |
|---|---|---|
| Married Filing Jointly | $403,500 | $553,500 |
| Single / Head of Household | $201,750 | $276,750 |
| Married Filing Separately | $201,775 | $276,775 |
A new minimum deduction of $400 applies, and taxpayers must have at least $1,000 of qualified business income to claim it. Both figures will adjust for inflation after 2026.
With permanent TCJA brackets and 199A thresholds, business owners should revisit entity structure and compensation splits. The deduction's mechanics still reward careful income management near phase-out ranges.
Section 179 Expensing Limits
For 2026:
- Maximum deduction: $2,560,000
- Phase-out threshold: $4,090,000
- SUV limit: $32,000
These numbers mark a modest increase from 2025 levels. The OBBBA also clarified that §179D (energy-efficient commercial buildings deduction) will end for property whose construction begins after June 30, 2026, a key consideration for real-estate developers and owners.
Estate, Gift, and Generation-Skipping Transfer Taxes
- Basic exclusion amount: $15,000,000 per individual for 2026.
- GST exemption: also $15,000,000.
- Annual gift exclusion: $19,000 per recipient.
- Spousal gift (non-citizen): $194,000.
- Special-use valuation (§2032A) cap: $1,460,000.
These record-high estate exemptions offer an extended window for wealth transfer planning. However, future legislation could change course, so consider locking in large lifetime gifts while these higher limits last.
Health, Education, and Benefit Adjustments
| Provision | 2026 Limit |
|---|---|
| Health FSA salary reduction | $3,400 |
| Health FSA carryover | $680 |
| QSEHRA maximum reimbursement | $6,450 self / $13,100 family |
| Monthly transit/parking exclusion | $340 |
| ABLE account annual contribution | $20,000 |
| Long-term care premium (age 70+) | $6,200 |
| Long-term care per-diem limit | $430 |
| Education savings bond phase-out (joint) | $152,650–$182,650 |
| Student loan interest phase-out (joint) | $175,000–$205,000 |
The permanent inclusion of employer-paid student loan assistance within §127 “educational assistance” is now law — a valuable benefit for employers designing retention packages.
Foreign Earned Income and Expatriation
- Foreign earned income exclusion: $132,900.
- The covered expatriate test applies if the average annual U.S. income tax exceeds $211,000.
- Expatriation exclusion amount: $910,000 of unrealized gain exempt from tax.
Key IRS Penalty Adjustments
| Penalty | 2027 Filing Amount |
|---|---|
| Minimum late-filing penalty (§6651) | $535 |
| Partnership or S-corp per-partner penalty (§§6698/6699) | $260 |
| Information return errors (§§6721/6722) | $340 per return (large filers) |
| Qualified Opportunity Fund late filing (§6726) | $510/day, max $10,000 ($51,000 if assets > $10.23M) |
| Intentional disregard (§6726(c)) | $2,550/day, up to $255,000 |
Context: These penalty amounts apply to returns required to be filed in 2027, reflecting inflation adjustments tied to the 2026 tax year.
Other Notable Adjustments
| Item | 2026 Amount |
|---|---|
| Foreign gift reporting threshold (§6039F) | $20,573 |
| Serious delinquent tax debt for passport denial (§7345) | $66,000 |
| Casual-sale lien protection (§6323) | $2,000 |
| Mechanic's lien limit (§6323) | $10,010 |
| Household goods exempt from levy (§6334(a)(2)) | $11,980 |
| Tools of trade exempt from levy (§6334(a)(3)) | $5,990 |
| Attorney fee cap (§7430) | $260/hour |
What These 2026 Adjustments Mean for You
For most taxpayers, these inflation adjustments are modest but meaningful. The larger impacts come from the permanent extension of TCJA-era provisions, especially the lower marginal rates, larger standard deduction, and expanded credits.
For business owners, the continuation of §199A (QBI) and §179 expensing rules simplifies near-term planning. High-net-worth families should focus on the $15 million estate exemption, as it provides a historically favorable environment for trusts and generational wealth transfers.
VIP Planning Playbook: 2026 Edition
- Update withholding and quarterly estimates early in 2026 to align with new brackets and credits.
- Reassess Roth conversion windows — permanent 37% top rates and higher AMT thresholds could make conversions more appealing before future rate changes.
- Maximize §179 and bonus depreciation opportunities before the 2026 phase-down of §179D for commercial buildings.
- Evaluate estate gifting strategies — the $15M exemption provides extraordinary planning flexibility that may not last indefinitely.
- Confirm benefit elections (FSAs, QSEHRAs, transit benefits) to take full advantage of the higher 2026 limits.
Bottom Line
The IRS's Revenue Procedure 2025-32 cements key features of the current tax landscape while ushering in new inflation adjustments across dozens of code sections. With the 2026 tax year now mapped out, the best move is to plan proactively by aligning income, investments, and estate strategies before year-end changes close the window on today's favorable rules.
If you'd like to see how these adjustments impact your 2026 tax plan, VIP Wealth Advisors can model the numbers and identify savings opportunities unique to your situation.
Source: Internal Revenue Service, Rev. Proc. 2025-32, issued October 2025.
(All figures apply to tax year 2026 unless otherwise noted.)
Frequently Asked Questions About the 2026 IRS Inflation Adjustments
Q Q: What are the federal income tax brackets for 2026?
A: The 2026 brackets keep the same seven rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37% but the income thresholds increase for inflation. For example, married couples filing jointly will pay 10% up to $24,800 of taxable income and reach the 37% bracket at $768,700. For single filers, the 37% bracket starts at $640,600. These thresholds were published in IRS Revenue Procedure 2025-32.
Q Q: What is the standard deduction for 2026?
A: For the 2026 tax year, the standard deduction increases to $32,200 for married couples filing jointly, $24,150 for heads of household, and $16,100 for single filers or those married filing separately. Seniors and visually impaired taxpayers can add $1,650 (or $2,050 if unmarried).
Q Q: Did the Child Tax Credit change for 2026?
A: Yes — the Child Tax Credit is now permanently set at $2,200 per qualifying child, with up to $1,700 refundable. The One Big, Beautiful Bill Act (OBBBA) made the expanded credit permanent, removing prior sunset dates from the 2017 TCJA.
Q Q: What is the Alternative Minimum Tax (AMT) exemption for 2026?
A: The 2026 AMT exemption rises to $140,200 for married couples filing jointly and $90,100 for single filers, with phaseouts beginning at $1,000,000 and $500,000 of AMT income, respectively. Estates and trusts get an exemption of $31,400, phasing out at $104,800.
Q Q: What are the 2026 Qualified Business Income (QBI) deduction limits?
A: The §199A QBI deduction thresholds are $403,500 for joint filers and $201,750 for single filers, with phaseouts ending at $553,500 and $276,750. A new minimum deduction of $400 applies, and taxpayers must have at least $1,000 of QBI to qualify.
Q Q: What is the Section 179 expensing limit for 2026?
A: Businesses can deduct up to $2,560,000 in Section 179 expenses for 2026, with the deduction phasing out once total property purchases exceed $4,090,000. The SUV limitation rises to $32,000.
Q Q: What is the estate and gift tax exemption for 2026?
A: The federal estate and gift tax basic exclusion amount increases to $15,000,000 per person in 2026, with a $19,000 annual gift exclusion and a $194,000 annual spousal exclusion for gifts to non-citizen spouses. The generation-skipping transfer (GST) exemption matches the $15 million level.
Q Q: What are the 2026 health and benefit plan limits?
A: For 2026, the Health FSA salary reduction limit is $3,400, with a carryover of $680. Qualified Small Employer HRAs (QSEHRAs) can reimburse up to $6,450 for self-only coverage or $13,100 for family coverage. Transit and parking benefits are each capped at $340 per month.
Q Q: What is the foreign earned income exclusion for 2026?
A: The foreign earned income exclusion rises to $132,900. U.S. expatriates meeting IRS residency or physical-presence tests can exclude up to this amount of foreign wages or self-employment income from U.S. taxation.
Q Q: What IRS penalties change for 2026 (returns filed in 2027)?
A: Key penalty adjustments include a $535 minimum late-filing penalty, $260 per partner/shareholder for late partnership or S-corp returns, and $340 per information return for incorrect filings. These apply to returns due in 2027 but relate to the 2026 tax year.
Q Q: Where can I read the full IRS Revenue Procedure 2025-32?
A: The IRS published the full text of Rev. Proc. 2025-32 in October 2025. It's available on the official IRS website under “Internal Revenue Bulletins” for 2025. The document contains all 2026 inflation-adjusted items across more than 60 tax code sections.
Q Q: How should I prepare for 2026 taxes now?
A: Adjust withholding or estimated tax payments for the higher 2026 brackets, review charitable and Roth strategies, and update your estate and business plans to leverage the $15M exemption and expanded QBI ranges. The sooner you align your 2026 plan, the more you'll save.
Q Q: Who can help me navigate these changes?
A: VIP Wealth Advisors integrates financial planning, investment management, and tax preparation under one roof, including proactive modeling of how the new 2026 IRS rules affect your income, equity compensation, and estate plan.
Ready to see how these 2026 changes impact your tax plan?
Book a discovery call with VIP Wealth Advisors. We'll model your numbers and identify savings opportunities unique to your situation.
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