2026 Individual Tax Deductions, Credits and Thresholds: What Taxpayers Need to Know

Tax year 2026 brings a number of important changes for individual taxpayers. Inflation adjustments have increased many familiar tax thresholds, while recent tax legislation has made other provisions permanent, expanded certain deductions and credits, and introduced new planning opportunities.

The rules discussed below apply to income earned during 2026 and generally reported on tax returns filed in 2027.

2026 Standard Deduction

The standard deduction increases again for 2026:

These higher amounts mean that taxpayers should compare their allowable itemized deductions with the standard deduction before deciding which method provides the greater tax benefit.

Federal Income Tax Brackets

The seven individual income tax rates remain at 10%, 12%, 22%, 24%, 32%, 35% and 37%.

For 2026, the taxable income levels at which several of the brackets begin are:

Remember that entering a higher tax bracket does not cause all of a taxpayer’s income to be taxed at the higher rate. Only the taxable income falling within that bracket is subject to that rate.

Higher State and Local Tax Deduction

One of the more significant changes for taxpayers who itemize is the substantially higher limitation on the deduction for state and local taxes, commonly referred to as the SALT deduction.

For 2026, the maximum SALT deduction is:

$40,400, or $20,200 for Married Filing Separately.

The deduction begins to be reduced when modified adjusted gross income exceeds $505,000, or $252,500 for Married Filing Separately. However, the limitation cannot be reduced below $10,000, or $5,000 for Married Filing Separately.

For taxpayers in states with relatively high property and income taxes, this change may make itemizing deductions worthwhile even when the standard deduction had been more beneficial in prior years.

New Charitable Deduction for Taxpayers Who Do Not Itemize

Beginning in 2026, taxpayers who claim the standard deduction can receive a federal tax deduction for certain cash charitable contributions.

The maximum deduction is:

• $1,000 for most filers
• $2,000 for Married Filing Jointly

This creates a tax benefit for qualifying charitable contributions even when a taxpayer does not itemize deductions.

Taxpayers who do itemize face a new limitation. Generally, charitable contributions are deductible only to the extent they exceed 0.5% of adjusted gross income, subject to the other applicable charitable contribution rules and limitations.

Additional $6,000 Deduction for Seniors

Taxpayers age 65 or older may qualify for an additional deduction of as much as $6,000 per eligible individual.

For a married couple filing jointly where both spouses qualify, the deduction can therefore reach $12,000.

The deduction begins to phase out when modified adjusted gross income exceeds:

• $75,000 for an individual taxpayer
• $150,000 for Married Filing Jointly

Importantly, this deduction is available whether the taxpayer claims the standard deduction or itemizes deductions. It is also separate from the traditional additional standard deduction available to taxpayers age 65 or older.

Deduction for Qualified Tip Income

Eligible workers in qualifying tipped occupations may deduct up to $25,000 of qualified tip income.

The deduction begins to phase out when modified adjusted gross income exceeds $150,000 for individual filers or $300,000 for joint filers.

This deduction is available to qualifying taxpayers whether they itemize or take the standard deduction. Specific requirements apply regarding qualifying occupations, reporting of the tips and Social Security numbers. Married taxpayers generally must file jointly to claim the deduction.

It is important to understand that “no tax on tips” does not mean that every dollar received as a tip is automatically exempt from all taxation. The law provides an income tax deduction subject to specific qualifications and limitations.

Deduction for Qualified Overtime

Certain workers receiving overtime compensation may qualify for a deduction of up to:

• $12,500 for an individual
• $25,000 for Married Filing Jointly

The deduction begins to phase out when modified adjusted gross income exceeds $150,000 for individuals or $300,000 for joint filers.

Another important distinction is that the deduction does not necessarily apply to the worker’s entire overtime paycheck. Qualified overtime generally refers to the portion of overtime compensation that exceeds the worker’s regular rate and that meets the requirements of the Fair Labor Standards Act.

Deduction for Car Loan Interest

Taxpayers may also qualify to deduct up to $10,000 of interest paid on a qualifying passenger vehicle loan.

Among other requirements, the loan generally must have been incurred after December 31, 2024, to purchase a qualifying new vehicle for personal use, and final assembly of the vehicle must have occurred in the United States.

The deduction begins to phase out when modified adjusted gross income exceeds:

• $100,000 for individual filers
• $200,000 for Married Filing Jointly

The deduction can be claimed by eligible taxpayers even if they use the standard deduction rather than itemizing.

Child Tax Credit

For 2026, the maximum Child Tax Credit is $2,200 per qualifying child.

Generally, a qualifying child must be under age 17 at the end of the year and meet the relationship, residency, support, dependency and identification requirements.

The income phaseout continues to begin at:

• $200,000 for most filers
• $400,000 for Married Filing Jointly

Taxpayers should also be aware of the Social Security number requirements that apply to the credit.

Child and Dependent Care Credit

The Child and Dependent Care Credit becomes potentially more valuable in 2026.

Eligible expenses remain limited to $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals, but the maximum applicable credit percentage increases to 50% for qualifying taxpayers.

Because the percentage is income-dependent, the actual credit available will vary based upon the taxpayer’s circumstances.

Earned Income Tax Credit

The Earned Income Tax Credit continues to provide assistance to qualifying lower- and moderate-income workers.

For 2026, the maximum EITC for a taxpayer with three or more qualifying children is $8,231. The actual credit depends upon earned income, adjusted gross income, filing status and the number of qualifying children.

Education Credits

The American Opportunity Tax Credit and Lifetime Learning Credit remain important education-related tax benefits.

The Lifetime Learning Credit income phaseout continues to apply for modified adjusted gross income between:

• $80,000 and $90,000 for most filers
• $160,000 and $180,000 for Married Filing Jointly.

Taxpayers paying college tuition or other qualified education expenses should determine which education benefit provides the greatest tax advantage because the same expense generally cannot be used to obtain multiple tax benefits.

Adoption Credit

For 2026, the maximum Adoption Credit increases to $17,670 per eligible adoption.

The credit begins to phase out when modified adjusted gross income exceeds $265,080 and is completely phased out at $305,080.

Up to $5,120 of the 2026 credit may be refundable.

Retirement Plan Contribution Limits

Retirement savings limits also increase for 2026.

The employee elective deferral limit for most 401(k), 403(b) and governmental 457 plans is: $24,500

Participants age 50 or older can generally make an additional $8,000 catch-up contribution.

Under the special SECURE 2.0 catch-up provision, participants who are ages 60 through 63 may have a higher catch-up limit of $11,250 for 2026.

The overall defined contribution plan limit increases to $72,000, excluding eligible catch-up contributions.

Traditional and Roth IRA Contribution Limits

The combined annual contribution limit for Traditional and Roth IRAs increases to:

$7,500 for taxpayers under age 50

Taxpayers age 50 or older can contribute an additional $1,100, producing a maximum contribution of: $8,600.

Eligibility to deduct a Traditional IRA contribution or contribute directly to a Roth IRA can be affected by income and participation in an employer retirement plan, so the contribution limit by itself does not determine deductibility or Roth eligibility.

SIMPLE and SEP Retirement Plans

For 2026, the regular employee contribution limit for SIMPLE plans increases to $17,000.

The standard age-50 catch-up contribution is $4,000, while qualifying participants ages 60 through 63 may be eligible for a higher $5,250 catch-up contribution.

For SEP plans, the maximum contribution increases to $72,000, subject to the applicable compensation and percentage limitations. The maximum compensation considered for this purpose is $360,000.

Health Savings Accounts

For 2026, the HSA contribution limits are:

Additional catch-up contributions may be available for taxpayers age 55 or older.

For an HSA-compatible high-deductible health plan, the minimum annual deductible for 2026 is $1,700 for self-only coverage and $3,400 for family coverage. The applicable maximum out-of-pocket amounts are $8,500 and $17,000, respectively.

Long-Term Capital Gains Thresholds

The preferential 0%, 15% and 20% federal long-term capital-gain rates continue in 2026, but the taxable-income thresholds have increased.

The top of the 0% long-term capital-gain bracket is:

• $49,450 for Single filers
• $98,900 for Married Filing Jointly
• $66,200 for Head of Household

The 15% capital-gain bracket extends up to taxable income of $545,500 for Single filers, $613,700 for Married Filing Jointly and $579,600 for Head of Household. Capital gains above the applicable threshold generally enter the 20% rate.

These thresholds can create valuable year-end planning opportunities, particularly for retirees and taxpayers with unusually low-income years.

Alternative Minimum Tax

For 2026, the Alternative Minimum Tax exemption increases to:

• $90,100 for unmarried taxpayers
• $140,200 for Married Filing Jointly

The exemption begins to phase out at $500,000 for unmarried taxpayers and $1,000,000 for married couples filing jointly.

Energy Credits Have Changed

Taxpayers planning home improvements should be aware that two widely used residential energy credits are no longer available for new qualifying expenditures in 2026.

The Energy Efficient Home Improvement Credit under Section 25C does not apply to property placed in service after December 31, 2025.

The Residential Clean Energy Credit under Section 25D, which had covered items such as qualifying solar installations, is not available for expenditures made after December 31, 2025.

Taxpayers should therefore not assume that an energy improvement qualifying for a federal credit in 2025 will produce the same credit in 2026.

Estate and Gift Tax Thresholds

The federal estate and gift tax basic exclusion amount increases substantially to $15 million per individual for 2026.

The annual gift tax exclusion remains $19,000 per recipient for 2026.

The annual gift tax exclusion is not a limit on how much a person is legally permitted to give. Rather, it generally determines how much can be transferred to a recipient during the year without using a portion of the donor’s lifetime estate and gift tax exemption.

Tax Planning Is Becoming More Important

One of the themes of the 2026 tax rules is that simply knowing the maximum deduction or credit is not enough. Many benefits now depend upon modified adjusted gross income, filing status, age, type of compensation or other specific qualifications.

For example, a taxpayer may potentially benefit from a larger SALT deduction, a senior deduction, a charitable contribution deduction, retirement contributions and other provisions, but the interaction among these items can materially change the ultimate tax result.

This makes tax planning before year-end particularly valuable. Taxpayers may want to review income, retirement contributions, capital gains and losses, charitable contributions, withholding and estimated payments before December 31 rather than waiting until the return is prepared.

The objective should not simply be to have an accurate tax return prepared after the year is over. Good tax planning looks ahead while there is still time to make decisions that may legally reduce the eventual tax liability.

This article provides general information regarding federal income tax rules and is not intended as individualized tax, legal or investment advice. Tax laws and IRS guidance can change, and individual circumstances can significantly affect the application of these provisions.

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Eric S. Degen, CPA Titan Accountancy, LLC

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