January 1, 2026 Tax Brackets and Key Changes

A significant shift in the United States tax code is scheduled for January 1, 2026. This change stems from the expiration of individual and estate tax provisions from the Tax Cuts and Jobs Act (TCJA) of 2017, which were set to end on December 31, 2025.

Unless Congress acts to extend these provisions, the tax landscape for individuals will revert to the rules that were in place before the TCJA, adjusted for inflation. This “sunset” will trigger widespread changes, impacting income tax rates, standard deductions, and the federal estate tax.

The Current Tax Landscape Under the TCJA

The Tax Cuts and Jobs Act of 2017 reduced individual income tax rates across most levels. For the 2025 tax year, the law sets seven tax brackets with rates of 10%, 12%, 22%, 24%, 32%, 35%, and a top rate of 37%. A defining change under the TCJA was a near-doubling of the standard deduction, which for 2025 is $15,000 for single filers and $30,000 for married couples filing jointly. This simplified tax filing for many, as it became more advantageous than itemizing deductions.

In a corresponding move, the TCJA eliminated personal exemptions, which were a per-person deduction that reduced taxable income. The law also introduced a $10,000 cap on the state and local tax (SALT) deduction and the Qualified Business Income (QBI) deduction, which provides a deduction of up to 20% for eligible income from pass-through businesses.

Projected 2026 Tax Brackets and Standard Deductions

The expiration of TCJA provisions means a return to higher marginal tax rates for most taxpayers. The seven brackets will become 10%, 15%, 25%, 28%, 33%, 35%, and a top rate of 39.6%. For many, this means more of their income will fall into higher brackets sooner. For example, a single filer with $50,000 in taxable income, who is in the 22% bracket under the TCJA, would find that same income taxed at the 25% rate in 2026.

The standard deduction will also be significantly reduced. Projections estimate the 2026 standard deduction will be approximately $8,300 for single filers and $16,600 for married couples filing jointly. The lower standard deduction will likely cause many more households to itemize their deductions.

Another major change is the return of personal exemptions. Eliminated by the TCJA, personal exemptions are scheduled to be reinstated in 2026 and are projected to be valued at around $5,300 per person. This deduction can be claimed for the taxpayer, their spouse, and any qualifying dependents, offsetting some of the impact of the lower standard deduction for larger families.

Significant Changes to Deductions and Credits

State and Local Tax (SALT) Deduction

The $10,000 cap on the state and local tax (SALT) deduction is scheduled to expire at the end of 2025. Starting in 2026, the limitation will be removed, allowing taxpayers who itemize to deduct the full amount of their state and local property taxes plus either their state income or sales taxes. This change will primarily benefit residents of states with higher income and property taxes.

Child Tax Credit (CTC)

The Child Tax Credit (CTC) will be significantly reduced. While the TCJA provided a $2,000 credit per child with income phaseouts starting at $400,000 for married couples, the 2026 rules revert to a $1,000 credit per child. The income thresholds for claiming the credit will also be much lower, with the phaseout for married couples beginning at $110,000 of adjusted gross income. The credit will only be available for qualifying children under age 17. The refundable portion of the credit, the Additional Child Tax Credit (ACTC), will also be affected, with the earned income threshold to claim it rising.

Qualified Business Income (QBI) Deduction

The deduction for Qualified Business Income (QBI), which allows owners of pass-through entities to deduct up to 20% of their qualified business income, is set to expire completely after December 31, 2025. This will increase the effective tax rate for many small business owners and self-employed individuals, who will face higher tax bills on the same amount of business profit.

Alternative Minimum Tax (AMT)

More taxpayers may become subject to the Alternative Minimum Tax (AMT) in 2026. The TCJA had increased the AMT exemption amounts and phase-out levels, shielding many taxpayers from this parallel tax system. With the sunset of these changes, the exemption amounts will revert to lower levels. This means certain deductions and tax preferences not allowed under AMT rules could push taxpayers into owing AMT, which requires calculating tax liability under both systems and paying the higher amount.

The Returning Estate Tax Exemption Cliff

A major change outside of annual income taxes involves the federal estate and gift tax exemption. The TCJA doubled this exemption, which for 2025 stands at $13.99 million per individual, allowing a married couple to shield nearly $28 million from federal estate and gift taxes. On January 1, 2026, this exemption is scheduled to be cut by approximately half.

The exemption will revert to its pre-TCJA level of $5 million, adjusted for inflation, which is projected to be around $7 million per person. This reduction will expose many more estates to the federal estate tax, which has a top rate of 40%. Individuals with a net worth exceeding the projected 2026 exemption amount will need to consider new estate tax planning strategies.

The IRS has issued “anti-clawback” regulations to prevent gifts made using the higher exemption before 2026 from being pulled back into an estate if the donor passes away after the exemption decreases. However, this protection generally applies to straightforward, irrevocable gifts, and proposed rules may limit it for more complex transfers.

Financial Planning Considerations for the Transition

The scheduled tax changes for 2026 warrant a proactive review of financial plans. One strategy is a Roth conversion, which involves converting a traditional IRA or 401(k) to a Roth account and paying income tax on the converted amount. Executing this before 2026 allows taxpayers to pay that tax at the current, lower marginal rates, securing tax-free growth and withdrawals when rates may be higher.

Another consideration is the timing of income and deductions. Some individuals may find it advantageous to accelerate income into 2024 or 2025 to have it taxed under more favorable rates. Conversely, deferring deductions until 2026 or later could result in greater tax savings, as deductions become more valuable when marginal tax rates are higher.

Finally, the reduction in the estate and gift tax exemption requires re-evaluating wealth transfer strategies. Individuals with estates valued above the projected $7 million exemption may consider making significant lifetime gifts before the end of 2025. Utilizing the current, higher exemption can remove assets and their future appreciation from a taxable estate. These strategies can be complex, making consultation with tax and estate planning professionals advisable.