IRS adjusts tax brackets to reflect inflation
Here is something all taxpayers should know: the IRS has announced new income tax brackets and standard deductions for the 2026 tax season. Here is something more interesting: these annual adjustments are designed to keep pace with inflation and prevent what’s known as “bracket creep”.
Bracket creep happens when inflation causes wages to rise, pushing taxpayers into higher tax brackets even though their real purchasing power hasn’t changed. To avoid this, the IRS raises the income limits for each tax bracket, meaning Americans will need to earn more next year before paying higher tax rates.
Let’s break this down even further. For example, a single filer earning $50,000 in 2026 will fall into the 12% tax bracket, compared to 22% in 2025. This shift could result in a noticeable reduction in the taxes many Americans owe.
Bloomberg Tax estimates that the IRS used an inflation rate of about 2.7% to make these 2026 changes. In previous years, the agency made larger adjustments — 5.4% in 2024 and 7% in 2023 — due to high post-pandemic inflation.
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New standard deduction amounts for 2026
Here is a juicy point you might want to pay attention to. Alongside the updated brackets, the IRS also raised standard deductions for 2026. The standard deduction is the portion of income that taxpayers can automatically exclude from taxation without needing to itemize expenses.
Here’s what the new standard deductions look like for 2026:
- Married couples filing jointly: $32,200
- Heads of households: $24,150
- Single taxpayers and married individuals filing separately: $16,100
In addition, seniors may qualify for extra relief under the One Big Beautiful Bill Act (OBBBA). Those aged 65 or older can deduct up to an additional $6,000, as long as their income is $75,000 or less for single filers or $150,000 or less for joint filers. This extra deduction is temporary and will expire at the end of 2028.
Understanding how tax brackets work
It’s a common misunderstanding that your entire income is taxed at one rate. In reality, the U.S. has a progressive tax system, meaning different portions of your income are taxed at different rates.
For example, a single person earning $50,000 in taxable income will pay:
- 10% on the first $12,400, and
- 12% on the remaining $37,600.
Similarly, a married couple making $150,000 in 2026 and using the $32,200 deduction will have $117,800 in taxable income. Their taxes would look like this:
- 10% on the first $24,800 = $2,480
- 12% on income from $24,800 to $100,800 = $9,120
- 22% on income from $100,800 to $117,800 = $3,740
- That means they’d pay a total of $15,340 in taxes, for an effective tax rate of 13% — much lower than their top bracket of 22%.
How the “One Big Beautiful Bill Act” impacts taxes
President Trump’s One Big Beautiful Bill Act, signed into law in July 2025, made several major tax cuts from the 2017 Tax Cuts and Jobs Act permanent. This includes lower individual income tax rates and expanded deductions for families.
According to the Tax Foundation, the typical filer could see an average tax cut of $3,752 in 2026. However, the savings vary depending on income and location.
Households earning less than $34,600 (the bottom 20%) are expected to save about $150 in 2026, or 0.8% of their income. Meanwhile, higher earners in the top 20% — those making $217,000 or more — could see average savings of $12,540, or about 2.5% of their income.
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Staying prepared for tax season
The IRS has reminded taxpayers that, despite government shutdowns or other disruptions, they must continue to file and pay taxes as usual. For those with a filing extension until October 15, it’s best to submit returns on time.
Taxpayers are encouraged to review their income, deductions, and withholding early to avoid surprises next spring. With the new 2026 tax brackets and deductions, many Americans may see a smaller tax bill — and a bit more breathing room in their budgets.
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