Tax Changes for 2026: New Rules, Rates & What's Different

The Backstory: What Was at Stake Before the OBBBA

To understand why 2026 tax law matters, you need to know what almost happened. The Tax Cuts and Jobs Act of 2017 (P.L. 115-97) restructured individual income taxes through a deliberate sunset mechanism: all individual provisions were set to expire after December 31, 2025. Congress did this to comply with Senate budget reconciliation rules that limit the 10-year cost of legislation.

Under the pre-OBBBA scenario, beginning January 1, 2026, the United States would have reverted to the 2017 pre-TCJA tax structure. The Tax Foundation estimated this would have raised the top marginal rate from 37% to 39.6%, reduced the standard deduction by roughly half, reinstated personal exemptions, and collapsed the 12% bracket back into higher rates affecting tens of millions of middle-income taxpayers. The Tax Foundation projected this would represent a $4.5 trillion tax increase over 10 years if nothing was done.

The OBBBA, signed July 4, 2025, prevented that reversion. It made the TCJA's individual income tax structure permanent and added several new provisions on top. What follows is a section-by-section breakdown of the 2026 landscape.

2026 Tax Brackets: All Seven Rates Remain

The seven-rate structure established by the TCJA is now permanent. For 2026, bracket thresholds are inflation-adjusted upward by approximately 2.7%, per IRS Rev. Proc. 2025-32. Had the TCJA expired, the top rate would have reverted to 39.6% and the bracket structure would have compressed — effectively raising taxes at nearly every income level.

Source: Tax Foundation, 2026 Tax Brackets and Federal Income Tax Rates; IRS Rev. Proc. 2025-32. Approximate figures — verify final IRS publication for precise thresholds.

Standard Deduction Increases: The Number That Matters Most

The standard deduction is the most consequential figure for the 91% of taxpayers who don't itemize, according to Tax Policy Center data. The 2026 amounts reflect both the TCJA's doubled deduction (made permanent) and the annual 2.7% inflation adjustment:

The additional standard deduction for taxpayers 65+ or blind is $2,050 per condition for single filers and $1,650 for married filers — stacked on top of the base amount. A married couple both over 65 reaches a combined $32,200 + $3,300 = $35,500 standard deduction before accounting for the new senior deduction discussed below.

For more detail on the standard deduction mechanics and when itemizing makes sense, see our complete Standard Deduction 2026 guide.

The New $6,000 Senior Deduction

The OBBBA created a brand-new deduction category that did not exist before: a $6,000 above-the-line deduction for taxpayers age 65 or older, available for tax years 2025 through 2028. This is separate from and in addition to the existing additional standard deduction amount for seniors.

Key rules:

• The deduction is $6,000 per eligible taxpayer. A married couple where both spouses are 65+ gets $12,000 combined.
• It phases out for single filers with modified AGI above $75,000 and MFJ filers above $150,000.
• It is an above-the-line deduction (reduces AGI), available whether you itemize or take the standard deduction.
• The deduction is temporary — it expires after 2028 unless Congress extends it.

For a retired couple with $90,000 in combined income (pension + Social Security) filing jointly, this deduction alone saves approximately $1,320 in federal tax (22% bracket). Combined with the $35,500 standard deduction, their effective taxable income shrinks dramatically.

SALT Deduction Cap: $40,400 (But With Fine Print)

The state and local tax (SALT) deduction was capped at $10,000 per the TCJA in 2017 — a provision that infuriated high-tax state taxpayers in California, New York, New Jersey, and Connecticut. The OBBBA raised that cap to $40,400 for tax year 2026 (indexed to inflation thereafter, with a 1% adjustment floor).

However, the higher cap is subject to meaningful phase-outs and a sunset:

• Phase-out: The $40,400 cap phases down for taxpayers with modified AGI above $505,000 (all filing statuses, indexed to inflation). At very high incomes, it effectively reverts toward $10,000.
• Sunset: The higher cap returns to $10,000 beginning in 2030, unless Congress acts again. This is a temporary relief measure, not a permanent fix.
• Married filing separately: The $40,400 cap is halved to $20,200 for married taxpayers filing separately — consistent with other deduction limitations for MFS filers.

Practical impact: A New York City couple with $250,000 in income paying $28,000 in state and local taxes previously could only deduct $10,000. Under the 2026 rule, they can potentially deduct the full $28,000 — saving an additional $3,960 in federal tax at the 22% rate. Whether they itemize depends on whether $28,000 in SALT + other deductions exceeds their $32,200 standard deduction.

Estate and Gift Tax Changes

The estate and gift tax provisions were among the most consequential elements the TCJA was set to unwind. Pre-TCJA, the federal estate tax exemption was approximately $5.5 million per person. The TCJA doubled it to $11.7 million (indexed to inflation). Without the OBBBA, it would have reverted to the inflation-adjusted pre-TCJA amount starting in 2026 — roughly $7 million — cutting the exemption nearly in half.

Under the OBBBA, the higher exemption is made permanent and increased further:

For high-net-worth families, the $15M exemption makes federal estate tax planning less urgent for the vast majority of estates. The Congressional Budget Office (CBO) estimated that only approximately 3,000–4,000 estates per year pay federal estate tax at current exemption levels — less than 0.1% of all deaths. For those estates that do reach taxable territory, the top rate remains 40%.

Child Tax Credit and Dependent Credits

The TCJA doubled the Child Tax Credit from $1,000 to $2,000 per qualifying child under age 17 and made up to $1,400 refundable (as the Additional Child Tax Credit). The OBBBA made these provisions permanent and made a modest inflation adjustment:

• Child Tax Credit: $2,200 per qualifying child for 2026 (up from $2,000)
• Refundable portion (ACTC): $1,700 maximum refundable amount
• Phase-out begins at $400,000 MAGI for married filing jointly, $200,000 for other filers
• The $500 non-refundable credit for other dependents (non-child qualifying dependents) remains in place

For more detail on eligibility rules, see the Child Tax Credit 2026 guide.

New Universal Charitable Deduction for Non-Itemizers

This is perhaps the most surprising new provision for middle-income taxpayers. Beginning with tax year 2026, the OBBBA permanently allows taxpayers who take the standard deduction to deduct up to $1,000 in cash charitable donations (single filers) or $2,000 (married filing jointly) as an above-the-line deduction.

This matters because of the standard deduction's effectiveness. When the TCJA doubled the standard deduction, charitable giving effectively became non-deductible for most Americans — the 91% who switched to the standard deduction gained nothing from their donations in tax terms. The OBBBA restores a meaningful, if modest, incentive.

Rules and limitations:

• Only cash contributions qualify (checks, credit card, online donations, payroll deductions)
• Must be to a qualified 501(c)(3) public charity — not donor-advised funds or private foundations
• Donations exceeding the $1,000/$2,000 cap cannot be carried forward
• Cannot be combined with itemized charitable deductions — you either itemize or use the above-the-line deduction, not both

The Tax Foundation estimates this provision will generate approximately $74 billion in additional charitable donations over the next decade. For a 22% bracket filer donating $1,000 to a qualifying charity, the net tax savings is $220 — real money that makes donating meaningfully more attractive.

Business Tax Changes: QBI Deduction Made Permanent

Self-employed individuals and small business owners face one key change worth highlighting: the Section 199A Qualified Business Income (QBI) deduction — which allows pass-through business owners to deduct up to 20% of qualified business income — was also scheduled to expire with the TCJA. The OBBBA makes it permanent.

This is significant for LLCs, S-corps, sole proprietors, and partnerships. A freelancer with $100,000 in net self-employment income can continue to deduct up to $20,000 from taxable income via Section 199A, subject to the applicable income limits and W-2 wage tests. Without the OBBBA, this deduction would have vanished entirely after 2025.

For self-employed taxpayers, also note that the self-employment tax rates and deductions are unchanged — the 15.3% SE tax rate and the 50% above-the-line deduction for the employer-equivalent portion remain in place.

Other Notable 2026 Inflation Adjustments

Beyond the OBBBA provisions, routine IRS inflation adjustments affect dozens of other tax parameters for 2026:

Source: IRS Rev. Proc. 2025-32; IRS Rev. Proc. 2025-19; Tax Foundation 2026 projections. Some figures approximate pending final IRS confirmation.

What Didn't Change: Provisions Left Out of the OBBBA

It's equally important to understand what the OBBBA did not change. Several taxpayer provisions remain exactly as they were:

• Long-term capital gains rates (0%, 15%, 20%) are unchanged. The 3.8% Net Investment Income Tax also remains for high earners.
• Roth IRA income limits — contribution eligibility still phases out for single filers with MAGI above $150,000 (full phaseout at $165,000) and MFJ above $236,000 (phaseout at $246,000).
• Mortgage interest deduction — still limited to interest on up to $750,000 of acquisition debt on a primary and secondary residence.
• Medical expense deduction — still deductible only for amounts exceeding 7.5% of AGI for itemizers.
• Miscellaneous itemized deductions subject to the 2% AGI floor remain permanently eliminated (a TCJA change the OBBBA kept).

Planning Implications for 2026

Knowing the rules is one thing — using them is another. Here is where tax planning effort is best directed in 2026:

1. High-Tax State Residents Should Re-Evaluate Itemizing

With the SALT cap jumping to $40,400, many taxpayers in California, New York, New Jersey, and Connecticut who previously took the standard deduction should run both calculations. If your SALT liability plus mortgage interest and other deductions exceeds your standard deduction, itemizing may now make sense for the first time since 2018.

2. Seniors Near the $75,000/$150,000 Income Boundary Should Manage AGI

The $6,000 senior deduction phases out above $75,000 (single) or $150,000 (MFJ) in modified AGI. Strategies that reduce MAGI — maxing HSA contributions, increasing 401(k) or IRA contributions, utilizing QCDs from an IRA for charitable giving — can push income below the threshold and unlock the full $6,000 deduction.

3. Charitable Donors Should Revisit Their Giving Strategy

With the new above-the-line deduction, standard deduction filers can now claim a deduction for up to $1,000/$2,000 in cash donations. High-income donors who itemize face a new 0.5%-of-AGI floor before charitable deductions count — meaning a taxpayer with $300,000 in AGI must donate at least $1,500 before any itemized charitable deduction reduces their tax. Donor-Advised Funds remain an effective vehicle for bunching deductions in high-income years.

4. Business Owners Should Maximize the QBI Deduction

The permanent Section 199A QBI deduction is one of the most valuable provisions in the code for pass-through business owners. Maximizing it involves staying within income limits, managing W-2 wage tests for high-income service businesses, and potentially restructuring the business entity if income exceeds the phase-out thresholds ($197,300 for single, $394,600 for MFJ in 2026).

Frequently Asked Questions