Federal Tax Brackets Announced for 2026

Understanding How Federal Income Taxes Are Calculated

Figuring out how much you owe for taxes can be complex and sometimes takes some work. That’s because the federal government and the Internal Revenue Service (IRS) don’t assess the same amount of tax for every dollar you earn. Instead, the IRS assigns your income to brackets with tax rates that increase as you earn more money.

Overview of the U.S. Progressive Tax System

The US has a progressive tax system at the federal level with seven brackets. The federal income tax rates that apply for individuals (10%, 12%, 22%, 24%, 32%, 35% & 37%) and won’t change next year, but the income tax “brackets” for individual taxpayers will increase based on inflation. The OBBBA (passed this year) made permanent the TCJA (passed in 2017) ordinary income tax structure and made an additional inflation adjustment for income subject to the bottom two brackets (10 percent and 12 percent), providing a 4 percent inflation adjustment for the bottom two brackets and a 2.3 percent increase for the higher brackets.

How Inflation Impacts Your 2026 Tax Bracket

As has been the case for the past several years, this means that you can earn more income in 2026 vs. 2025 before being taxed in a higher tax bracket at a higher rate.

Marginal Tax Rate vs. Effective Tax Rate Explained

Note that the top tax rate that your income falls into is not the actual rate you pay. The lowest rate of 10% applies to single filers on the first $12,400 or less that they make and married filers making $24,800 or less. As you earn more money, your additional income jumps to the next higher tax bracket and that portion of you income is taxed at a higher tax rate.

For example, a hypothetical single filer would owe 10% or $1,240 on the first $12,400 of taxable income in 2026 whether that amount represents their total earnings, or they earn $1 million. The next single-filer tax bracket is 12% of taxable income levels between $12,401 to $50,400, which equates to an additional $4,560. The tax rates continue to increase as someone’s income moves into higher brackets. At the high end, you’ll need to make $640,601 or more filing singly or $768,701 filing jointly before you hit the top 37% rate.

The top rate that you are taxed in is considered your “marginal tax rate” (37% in the case of someone make $1 million or 22% for someone who made $100,000) and the total tax that you pay as a percentage of your income is called your “effective tax rate.”

Standard Deduction and Itemized Deduction Amounts for 2026

Before you apply the above income tax rates to your income, you can subtract 401(k) or HSA contributions and either the standard deduction or itemized deductions if you plan to itemize to your total income in order to lower the amount subject to income tax. For 2026, the standard deduction will be $16,100 for single filers and $32,200 for joint filers.

How the SALT Deduction Changes Under OBBBA

After applying your deduction(s), the difference is your total “taxable income”, although other adjustments to income or deductions may apply.
Most taxpayers have used the standard deduction versus itemizing deductions ever since the TCJA capped the deduction for state and local income taxes (SALT) at $10,000 for single and joint filers. This particularly impacted taxpayers in states that have both high state income tax rates and high property taxes.
As a result of OBBBA passed this year, the SALT deduction was increased to $40,000 and then will revert to back $10,000 in 2030.

The higher SALT cap begins to phase out for incomes above $500,000 ($250,000 in the case of a married individual filing separately). For tax years 2026 through 2029, the SALT deduction and income phase-out levels also will be increased 1% a year. After 2029, the $10,000 SALT deduction would be applicable to single and joint filers regardless of income and would become permanent.

For more information on the 2025 SALT deduction, you can click on the following months to check out our commentaries from September and October.

How Different Types of Income Are Taxed

Also note that not all income is taxed the same. The above brackets apply to income you’ve earned such as salary, bonuses, tips, interest earnings and withdrawals from retirement accounts such as IRAs.

Qualified dividend income and gains that you realize from selling assets that you’ve held for more than one year are taxed separately at the rates and brackets noted below. You can even qualify for a 0% tax rate on long-term realized capital gains if you earn $49,450 or less filing singly and $98,900 filing jointly.

2026 Gift and Estate Tax Exemptions

Lastly, the first $19,000 of gifts that you make to any person is excluded from tax, remaining the same as in 2025. The exclusion is increased to $194,000 from $190,000 for gifts to spouses who are not citizens of the United States.

The OBBBA also made the TCJA-era lifetime estate tax exemption permanent and raised it to $15 million per person beginning in 2026, adjusted for inflation moving forward. This means that, for a married couple, your combined estate needs to be worth at least $30 million before federal estate taxes apply.

Year-End Tax Planning Tips for Investors

With the tax year starting to wind down, we’ll be starting to highlight year-end tax strategies in our commentaries like tax-loss harvesting, charitable contributions and gifting and Roth conversions.

It’s always a good idea to be having a conversation about tax planning with your ACM Wealth Advisor and you should be on the lookout for our upcoming series of year-end planning commentaries, which we’ll be starting over the next few weeks.

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