WASHINGTON, Jan 6, 2026, 07:31 EST
- The IRS has widened 2026 federal income-tax bracket thresholds and raised the standard deduction for income earned this year.
- Employers are updating withholding tables for 2026 paychecks, while taxpayers gear up to file 2025 returns under new rules.
- New deductions for tips, overtime and seniors may lower some bills, but refunds can shrink if withholding is mis-set.
U.S. workers are starting 2026 with higher income thresholds for federal tax brackets and a larger standard deduction, shifts that can change how much tax employers withhold from paychecks, the Internal Revenue Service said.
The timing matters because payroll systems are being reset for the new year. Employees who expect different deductions or credits can update Form W-4, the form that tells an employer how much federal income tax to withhold.
The bracket changes also land as taxpayers prepare to file 2025 returns in the coming weeks, when several new deductions enacted in 2025 begin showing up on tax forms.
The top marginal rate stays at 37% for taxable income above $640,600 for single filers and $768,700 for married couples filing jointly, while the lowest rate is 10% on taxable income up to $12,400 and $24,800, respectively, the IRS said. A marginal rate is the percentage applied to your next dollar of taxable income, after deductions, not your entire income. The IRS said the standard deduction rises to $16,100 for single filers and $32,200 for joint filers in 2026; for 2025 returns filed this year it is $15,750 and $31,500, respectively. ( Irs)
The IRS said its 2026 withholding tables, used by employers to calculate how much federal income tax to hold back, were updated for changes in the One Big Beautiful Bill Act, also known as Public Law 119-21. Publication 15-T says the 2026 Form W-4 was revised to account for new deductions and includes a checkbox for workers claiming exemption from withholding. It also notes qualified tips and overtime payments remain generally subject to Social Security and Medicare taxes. ( Irs)
Under the law, workers may deduct up to $25,000 of “qualified tips” and up to $12,500 of qualified overtime pay through the 2028 tax year, with both benefits phasing out for taxpayers with modified adjusted gross income above $150,000, the IRS said. It also created an additional $6,000 deduction for individuals age 65 and older, per eligible person, with a phaseout starting at $75,000. ( Irs)
Caroline Bruckner, managing director of American University’s Kogod Tax Policy Center, said a higher standard deduction lowers taxable income and can reduce a taxpayer’s bill. “If the standard deduction increases, that means that they’re going to have a lower taxable income, which means that they’ll pay less taxes,” she said. ( Fastcompany)
A July analysis by the Tax Policy Center estimated the law’s revenue provisions would cut 2026 taxes by about $1,800 on average for middle-income households, compared with about $150 for the lowest-income households. It said higher-income households would see the largest dollar gains. ( Taxpolicycenter)
But bigger paychecks are not automatic, and a lower withholding setting can backfire. Taxpayers who reduce withholding too much can end up owing at filing time or getting a smaller refund, and the new deductions come with income limits and definitions that may surprise filers, Investopedia wrote. ( Investopedia)
