2026 has been one of the most active tax-change years in recent memory. The One Big Beautiful Bill Act (OBBBA) introduced tax-free overtime through 2028. The Inflation Reduction Act extended ACA premium subsidies. Eleven states changed their income tax rates. The standard deduction increased to $16,100 single. RMDs moved further out. Here's the comprehensive guide to every change that affects your paycheck this year.
Federal income tax brackets for 2026: bracket thresholds were adjusted upward by approximately 4.7% from 2025 to account for inflation. Single filer brackets: 10% up to $12,400, 12% up to $49,850, 22% up to $106,450, 24% up to $203,300, 32% up to $258,550, 35% up to $640,600, 37% above. Married filing jointly brackets are exactly double the single thresholds through 24%, then narrower at higher levels.
Standard deduction increases: $16,100 for single filers (up from $15,000 in 2025), $32,200 for married filing jointly (up from $30,000). Head of household: $24,150. Additional standard deduction for age 65+ or blind: $1,650 single / $1,300 each spouse MFJ. These are the largest increases in recent years and reduce taxable income meaningfully for most filers.
Social Security wage base increased to $184,500 (up from $176,100 in 2025). This means high earners pay an additional 6.2% Social Security tax on the difference — about $521 in additional tax for someone earning $184,500+ in 2026 vs 2025. Above the wage base, no Social Security tax applies (Medicare 1.45% continues, plus 0.9% Additional Medicare above $200K).
The OBBBA tax-free overtime provision (signed July 4, 2025) is the most significant new tax break since the 2017 TCJA for hourly workers. Up to $12,500 ($25,000 married filing jointly) of overtime premium pay is excluded from federal income tax. The exclusion applies to the OT premium portion — the half-time over base rate, not the full overtime rate. Phase-outs begin at $150K single / $300K MFJ MAGI. The provision sunsets after 2028 unless extended.
Practical impact: a nurse earning $40/hour base, working 250 hours of overtime per year at time-and-a-half ($60/hour), earns $5,000 in OT premium pay (the $20/hour 'half' premium portion × 250 hours). Under OBBBA, this $5,000 is federally tax-free. At a 22% marginal rate, that's $1,100 of tax savings per year. State tax still applies (no state has implemented similar exclusions yet).
ACA premium tax credit expansions extended through 2026. The Inflation Reduction Act eliminated the 400% Federal Poverty Level cliff that previously made high earners ineligible for marketplace subsidies. Subsidies now phase down gradually rather than disappearing at a hard threshold. For families with incomes between $100K and $200K, this can mean thousands per year in subsidy support — particularly valuable for early retirees, freelancers, and others without employer health insurance.
State tax changes: 11 states reduced income tax rates effective 2026. Louisiana converted from a graduated system (1.85%-4.25%) to a flat 3% rate. Mississippi reduced from 4.4% to 4.0%. Missouri converted to a flat 4.0%. Kansas reduced top bracket from 5.7% to 5.58%. Utah reduced from 4.55% to 4.45%. South Carolina reduced top bracket from 6.2% to 6.0%. West Virginia reduced from 5.12% to 4.82%. Oklahoma reduced from 4.75% to 4.5%. North Dakota top bracket reduced from 1.95% to a complex 0/1.95/2.5% structure (slight increase at top). North Carolina reduced from 4.25% to 3.99%. Indiana, Kentucky, and Iowa continued previously-scheduled phase-downs.
Three states converted to flat tax structures: Louisiana, Mississippi, Missouri. This continues a multi-year trend of states moving from graduated to flat rates. The competitive pressure for low-tax states is real, and the migration of high earners to no-tax states (Texas, Florida, Tennessee) appears to be accelerating these state-level reforms.
Required Minimum Distribution age remained at 73 for those born 1951-1959. Those born in 1960 or later have RMDs starting at age 75 (under SECURE 2.0). This change pushes the forced taxable withdrawal of pre-tax retirement assets out two more years compared to pre-SECURE rules.
Section 529 changes from prior years remain in effect: up to $10,000/year of K-12 tuition is qualified, and unused 529 balances can roll to the beneficiary's Roth IRA up to $35,000 lifetime (with 15-year account hold requirement). Contribution limits for 2026: $19,000 per donor per beneficiary annual gift exclusion ($38,000 if married, with 5-year acceleration for $95,000/$190,000).
401(k) contribution limits increased to $23,500 for elective deferrals ($31,000 with age 50+ catch-up). The total 401(k) limit (employee + employer + after-tax) increased to $69,000 ($76,500 with catch-up). IRA limits remained at $7,000 ($8,000 catch-up). These limits matter especially for those using Mega Backdoor Roth strategies.
HSA limits increased: $4,400 single / $8,750 family / $1,000 catch-up if 55+. The HSA remains the only triple-tax-advantaged account in the code, and the limits keep increasing with inflation.
Federal estate tax exemption increased to $13.9 million per person. The doubled exemption from TCJA was scheduled to revert after 2025, but recent legislation extended the doubled exemption through 2026. Long-term direction is uncertain — legislative extensions through 2026 don't guarantee further extensions. Estates between $7M and $14M face 'use it or lose it' planning urgency.
Annual gift tax exclusion increased to $19,000 per donor per recipient ($38,000 married couples). Strategic gifting at year-end can move significant wealth out of taxable estates without using lifetime exemption.
Capital gains brackets adjusted with inflation. The 0% LTCG bracket extends to $48,350 single / $96,700 MFJ taxable income in 2026. The 15% bracket extends to $533,400 / $600,050. The 20% bracket above. NIIT thresholds remain at $200K/$250K (never indexed since 2010).
QBI deduction (Section 199A) remains in effect for 2026 with the same $200K/$400K thresholds for full deduction. The deduction was scheduled to expire after 2025 but has been extended through 2026. Long-term direction unclear.
What's NOT changing in 2026: SALT cap remains at $10,000 (extended through 2026). Standard deduction phase-outs remain (eliminated for high earners under TCJA, no return scheduled). Personal exemption remains at $0 (eliminated by TCJA, no scheduled return).
What might change for 2027 and beyond: many TCJA provisions including the doubled estate exemption, doubled standard deduction, lower bracket structures, SALT cap, and QBI deduction were originally scheduled to expire after 2025. Recent legislation extended most through 2026, but their long-term fate depends on future legislation. The 2026 election cycle may significantly affect these provisions.
Practical takeaways: most W-2 employees will see slightly smaller tax bills in 2026 due to bracket inflation adjustments and the larger standard deduction. Hourly workers with overtime get a meaningful new exclusion. High earners in flat-tax-converting states benefit. ACA marketplace participants benefit from continued enhanced subsidies. The general direction is favorable, but planning for potential 2027+ changes (especially around estate planning) makes sense for high-net-worth families.