Optima Tax Relief Breaks Down 2026 Tax Law Changes and What They Mean for You

As the 2026 tax year approaches, taxpayers face a mix of inflation adjustments and structural reforms that will influence how much they owe or save when filing in 2027. From updated income tax brackets to expanded deductions and credits, understanding these tax changes in 2026 can help taxpayers plan effectively, optimize withholding, and take full advantage of available tax benefits.

What Is the Standard Deduction?

The standard deduction is a fixed dollar amount that reduces taxable income. Instead of itemizing deductions such as mortgage interest, state taxes, or charitable donations, most taxpayers claim the standard deduction to lower the amount of income subject to federal taxation.

For 2026, the standard deduction has increased across all filing statuses due to inflation adjustments and provisions in the One Big Beautiful Bill Act (OBBBA):

Single filers: $16,100

Married filing jointly: $32,200

Head of household: $24,150

Married filing separately: $16,100

Taxpayers aged 65 or older, or who are legally blind, can also claim additional standard deductions. These layered deductions can substantially reduce taxable income, making them particularly beneficial for seniors and those with limited deductions otherwise. For example, a married couple where both spouses are over 65 could combine the standard deduction with additional age-based amounts and a bonus senior deduction to lower taxable income significantly.

What Is the Alternative Minimum Tax Exemption?

The Alternative Minimum Tax (AMT) ensures that higher-income taxpayers pay a minimum amount of tax even if credits and deductions reduce regular tax liability. To avoid unintentionally pulling middle-income households into the AMT, the IRS adjusts exemption amounts annually for inflation.

For 2026, the AMT exemptions are:

Single filers: $90,100

Married filing jointly: $140,200

Phaseouts begin at $500,000 for single filers and $1,000,000 for joint filers. These adjustments reduce the chance that wage growth or cost-of-living increases trigger AMT liability, keeping its focus on higher-income households while protecting middle-income earners.

How Will Taxes Change in 2026?

Several key updates will affect taxpayers across the board:

Inflation-adjusted income tax brackets: Marginal tax rates remain the same, but the income thresholds for each bracket have increased. This allows more income to be taxed at lower rates, slightly reducing effective tax rates for many households. For example, a single filer moving from $50,000 to $51,000 in income may remain in the 12% bracket longer than in previous years, reducing additional tax owed.

Higher standard deductions: As described above, increased standard deductions reduce taxable income and may eliminate the need to itemize for many taxpayers.

Senior-focused deductions: Taxpayers aged 65 or older can claim both the regular additional deduction and a $6,000 bonus senior deduction (available 2025–2028), with phaseouts beginning at $75,000 for single filers and $150,000 for joint filers. Combined with the standard deduction, these deductions can significantly reduce federal tax liability for retirees.

Expanded state and local tax (SALT) deductions: The SALT cap increases to $40,400 for joint filers ($20,200 for married filing separately), benefiting taxpayers in high-tax states. The deduction begins phasing out for households earning above $500,000, but this adjustment may make itemizing worthwhile for families paying significant property or state taxes.

Child and family credits: Family-focused credits, including the Child Tax Credit, Earned Income Tax Credit, and Adoption Tax Credit, are updated for inflation. These adjustments continue to provide critical financial support to households raising children or dependents.

New savings vehicles: Trump Accounts for children born between 2025 and 2028 allow tax-advantaged long-term savings, while permanent HSA telehealth rules expand access to health savings accounts without impacting deductibility.

How Much Is the Child Tax Credit in 2026?

The Child Tax Credit remains an essential relief tool for families. Eligible taxpayers can claim up to $2,200 per qualifying child, directly reducing federal income tax liability. Families with little or no tax owed may also qualify for the Additional Child Tax Credit, a refundable benefit of up to $1,700 per child, depending on income. These increases ensure that working families continue to receive meaningful financial support, helping offset child-related expenses.

How Much Can You Deduct for Charitable Contributions?

Charitable contribution deductions have changed significantly in 2026. For the first time, taxpayers who do not itemize can claim an above-the-line deduction:

Single filers: up to $1,000 in cash donations

Married filing jointly: up to $2,000

This expands access to a tax benefit for millions of Americans who previously couldn’t deduct charitable contributions.

For itemizers, the rules have shifted. Only contributions exceeding 0.5% of adjusted gross income (AGI) are deductible, and high-income taxpayers in the top 37% bracket see the value of their deductions limited to 35 cents per dollar rather than 37. Cash contributions exceeding AGI-based limits can still be carried forward for up to five years, allowing donors to maximize the tax benefit over multiple years.

Other Key 2026 Tax Updates

Retirement and fringe benefits: Contribution limits for health flexible spending accounts (FSAs) rise to $3,400, and transportation fringe benefits increase to $340 per month, helping workers offset commuting and medical costs with pre-tax dollars.

Foreign earned income exclusion: Taxpayers working abroad can exclude up to $132,900 in foreign-earned income from U.S. taxation in 2026, up from $130,000 in 2025.

529 Plan expansions: Families can now use 529 savings for a wider array of educational and career-related expenses, including certifications, apprenticeships, and dual enrollment courses. The K–12 annual limit rises to $20,000 per beneficiary, double the prior limit, offering greater flexibility for supplemental or private schooling.

Planning Ahead for 2026 Taxes

Taxpayers who plan proactively can maximize benefits and reduce liabilities. Strategies include:

Adjust withholding and estimated payments: Higher standard deductions and expanded credits may result in over-withholding. Reviewing Form W-4 early in 2026 ensures withholding matches actual tax liability.

Strategically time income and deductions: Self-employed individuals and business owners can manage when income is recognized and expenses are incurred to optimize tax outcomes under new brackets and phaseouts.

Maximize deductions and credits: Seniors should track eligibility for both regular and bonus deductions, while families should plan charitable giving and 529 contributions to take full advantage of new opportunities.

Consider itemizing if advantageous: Taxpayers in high-tax states may benefit from itemizing due to the expanded SALT deduction and mortgage or charitable expenses. Phaseouts should be monitored carefully to avoid overestimating benefits.

Conclusion

The 2026 tax year offers both routine inflation adjustments and major structural changes that impact most taxpayers. Higher standard deductions, updated brackets, expanded senior benefits, and new savings opportunities such as Trump Accounts present multiple avenues for tax savings. Families, retirees, and high-income households should carefully review these changes, plan charitable giving, optimize deductions, and adjust withholding as needed.

By staying informed and proactive, taxpayers can reduce federal tax liability, improve cash flow, and strengthen long-term financial stability. Understanding the interplay between deductions, credits, and income thresholds is essential to making the most of the 2026 tax code, turning what can be a complex filing year into an opportunity for strategic tax planning.