WASHINGTON, D.C. — October 2025
The Internal Revenue Service (IRS) has announced the tax year 2026 annual inflation adjustments, covering more than 60 provisions — including updates to tax rate schedules, standard deductions, and credits. These changes, released under the “One, Big, Beautiful Bill (OBBB)”, are outlined in Revenue Procedure 2025-32 and will apply to returns filed in 2027.

At Funds To Function, we understand that staying ahead of IRS adjustments can make all the difference in smart tax planning, compliance, and year-end strategy. Here’s what you need to know.

Standard Deduction Gets a Boost

The standard deduction has once again been increased to help offset inflation:

Single / Married Filing Separately: $15,750 → $16,100
Married Filing Jointly / Surviving Spouses: $31,500 → $32,200
Head of Household: $23,625 → $24,150

Funds To Function Insight: A higher deduction means slightly lower taxable income — but if your itemized deductions exceed these limits, you may still benefit from a detailed review.

Updated 2026 Tax Brackets

The top marginal tax rate remains 37%, applying to single filers earning over $640,600 or $768,700 for married couples filing jointly. Other brackets include:
• 35% for income over $256,225
• 32% for income over $201,775
• 24% for income over $105,700
• 22% for income over $50,400
• 12% for income over $12,400
• 10% for income up to $12,400

Tip: Knowing your bracket early helps with proactive withholding adjustments, investment timing, and quarterly tax planning.

Enhanced Family & Employer Credits

The One, Big, Beautiful Bill brings some family-friendly tax updates:
• Adoption Credit: Increases to $17,670 (from $17,280 in 2025)
• Refundable portion: Up to $5,120
• Employer-Provided Childcare Credit: Jumps dramatically from $150,000 to $500,000 — or $600,000 for small businesses

Funds To Function Perspective: These adjustments make it easier for employers to support working parents while enjoying significant tax relief.

Global & Mobility Adjustments

• Foreign Earned Income Exclusion: Rises to $132,900 (from $130,000)
  • Annual Gift Exclusion: Remains at $19,000
  • Gifts to Non-Citizen Spouses: Increase to $194,000
  
  This ensures American taxpayers living or working abroad can continue to balance compliance and financial efficiency.

Health & Benefit Plan Updates

• Health FSA Limit: Up to $3,400
  • Carryover Limit: Increases to $680
  • Qualified Transportation / Parking: $340 per month
  • Medical Savings Account Deductibles: Range between $2,900 – $4,400 for self-only coverage

Estate, AMT, and Unchanged Items

• Estate Tax Exclusion: Rises to $15 million (up from $13.99M)
  • AMT Exemption: $90,100 for singles; $140,200 for joint filers
  
  Items unchanged:
  • Personal Exemptions: Remain $0
  • Itemized Deduction Limitations: Still removed for most taxpayers
  • Lifetime Learning Credit: No inflation adjustment (phased out between $80,000–$90,000 MAGI)
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Funds To Function’s Takeaway

The IRS’s 2026 inflation adjustments reflect the government’s ongoing effort to balance rising costs and taxpayer relief. While these numbers may seem minor, strategic planning can turn small changes into big savings — especially for businesses, nonprofits, and families.At Funds To Function, we help you stay proactive — not reactive — with every tax update, ensuring you maximize deductions, maintain compliance, and keep your finances future-ready.

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