The IRS has released new federal income tax brackets for 2026, which could result in a slightly bigger paycheck for many workers. The inflation-based change increased the income ranges for the two lowest tax brackets by about 4%, and the higher ones by roughly 2.3% compared to 2025.
The agency also unveiled inflation adjustments for the standard deductions, capital gains brackets, and other provisions. Additionally, workers will see 2026 paycheck withholding changes “layered on top of that,” based on President Donald Trump’s new law, according to Garrett Watson, director of policy analysis at the Tax Foundation. Withholdings dictate how much employers retain for income and payroll taxes.
Understanding the Tax Bracket Changes
Enacted in July, Trump’s legislation permanently extended his 2017 tax cuts, boosted the standard deduction, increased the child tax credit, and added several temporary tax breaks. Those cuts include a bonus deduction for seniors, a bigger state and local tax deduction, tax breaks on tips and overtime income, among other provisions. Many of these changes applied to 2025, but the IRS did not adjust withholding tables, and workers’ paychecks generally stayed the same through year-end.
As a result, many workers could see a bigger tax refund when filing 2025 returns in 2026, experts say. Once 2026 withholdings go into effect, “folks will see slightly larger paychecks,” assuming their income stays the same as 2025, said Andrew Lautz, director of tax policy for the Bipartisan Policy Center. “For most workers, we’re talking about a couple of dollars a paycheck, unless you’re claiming the tips and overtime deductions,” depending on withholdings, he said.
Impact of Higher Tax Brackets on Finances
When tax brackets increase, you can earn more before reaching the next income tax rate. If earnings stay the same from 2025 to 2026, wider brackets could mean a bit higher take-home pay. However, tax bracket adjustments are “a lagging measure of inflation over the prior year,” and the current figures can be higher, said Watson with the Tax Foundation.
The consumer price index, a key inflation measure, rose 2.7% in November 2025 compared with the previous year, the Bureau of Labor Statistics reported in December. That is more than most of the 2026 tax bracket adjustments. Of course, your personal inflation rate could be different, depending on the goods and services your household consumes.
For more information on the 2026 tax brackets and how they may affect your finances, visit the IRS website or consult a tax professional. You can also find more details on the tax changes and their impact on workers Here
Smart Tip for Readers
To make the most of the new tax brackets and withholdings, review your income and tax situation to determine if you need to adjust your withholding or tax strategy, and consider consulting a tax professional for personalized advice.
