WASHINGTON — The Internal Revenue Service last month released its annual inflation adjustments for tax year 2026, raising federal income tax brackets and standard deductions to offset rising costs. The changes, detailed in Revenue Procedure 2025-32, apply to income earned in 2026 and tax returns filed in 2027.
These updates affect more than 60 tax provisions, including rate schedules influenced by the One Big Beautiful Bill Act passed in July 2025. That legislation made permanent many individual tax cuts from the 2017 Tax Cuts and Jobs Act, preventing a reversion to higher pre-2018 rates. The IRS used the chained Consumer Price Index, a measure tied to the 2017 law, to calculate adjustments averaging 2.7 percent across most parameters. The top marginal rate stays at 37 percent for single filers with taxable income over $640,600 and joint filers over $768,700.
For single filers, the seven brackets cover these ranges: 10 percent on the first $12,400; 12 percent from $12,401 to $50,400; 22 percent from $50,401 to $106,550; 24 percent from $106,551 to $202,400; 32 percent from $202,401 to $258,600; 35 percent from $258,601 to $640,600; and 37 percent above that. Married couples filing jointly see thresholds roughly double: 10 percent up to $24,800; 12 percent to $100,800; 22 percent to $213,100; 24 percent to $404,800; 32 percent to $517,200; 35 percent to $768,700; and 37 percent beyond.
The standard deduction rises to $16,100 for single filers and $32,200 for joint filers, up $350 and $700 from 2025 figures boosted by the new law. Heads of households qualify for $24,150. Taxpayers 65 or older add $2,050 if single or $1,650 per spouse if joint, plus a temporary $6,000 extra deduction through 2028 that phases out above $75,000 modified adjusted gross income for singles or $150,000 for joint filers.
These shifts aim to curb bracket creep, where inflation erodes purchasing power and nudges earners into higher brackets without real wage growth. Bracket creep occurs when inflation, rather than actual income increases, pushes taxpayers into higher tax brackets or diminishes the value of credits and deductions, according to the Tax Foundation. Without adjustments, a fixed salary buys less but faces steeper taxation.
Consider a single filer earning $104,000 in taxable income for 2025. They pay 10 percent on the first $11,925; 12 percent on earnings from $11,926 to $48,474; 22 percent from $48,475 to $103,349; and 24 percent on the remaining $651. In 2026, without a raise, the same income avoids the 24 percent tier entirely: 10 percent up to $12,400; 12 percent to $50,400; and 22 percent on the balance through $106,550. This simplifies the example by excluding the standard deduction and other factors, but it illustrates potential withholding relief. Employers use updated IRS tables to calculate federal withholding on W-4 forms, possibly increasing take-home pay by a few dollars weekly.
The adjustment equates to about 2.2 percent growth in the standard deduction, smaller than the 7 percent in 2023, 5.4 percent in 2024, or 4.8 percent in 2025. Still, it preserves buying power amid 3 percent inflation over the year ending September 2025, per U.S. Department of Labor data. Financial experts caution this is not new income but an inflation offset; gains may shrink against hikes in health premiums or housing costs common in Southern Maryland.
Residents in Charles, Calvert, and St. Mary’s counties — home to about 500,000 people across military bases, naval shipyards, and commuting routes to Washington — stand to benefit alongside the nation. Many households here rely on federal salaries from Patuxent River Naval Air Station or the FBI Academy in Quantico, Virginia, where fixed pay scales amplify bracket creep risks. A service member earning $104,000, for instance, might see $200 to $300 less withheld annually, easing budgets strained by 4 percent property tax increases in Charles County this year or rising tolls on the Chesapeake Bay Bridge.
Maryland’s tax code layers on top of federal changes. The state conforms to many IRS adjustments but maintains its own eight brackets, topping 5.75 percent on income over $250,000 for singles. Recent state budget moves, via the 2026 Budget Reconciliation and Financing Act signed in June 2025, added brackets at 6.25 percent for singles over $500,000 and 6.5 percent above $1 million, plus a 2 percent capital gains surtax for federal adjusted gross income exceeding $350,000. These generate $820 million for state coffers amid a $3 billion deficit forecast, per budget documents.
For Southern Marylanders, this means combined federal-state rates could reach 43.5 percent for high earners, up from prior levels. A Waldorf teacher with $80,000 income pays federal 22 percent on most earnings after deductions, plus Maryland’s 5 percent plus Charles County’s 3.03 percent piggyback tax. The federal bump keeps their effective rate stable despite inflation pushing groceries up 3.5 percent locally, as tracked by the Bureau of Labor Statistics for the Washington metro area.
Other 2026 tweaks include a $24,500 limit on 401(k) and similar contributions, up $1,000; an earned income tax credit maximum of $8,231 for families with three or more children; and a $15 million estate tax exemption, doubled from 2025. The gift tax exclusion holds at $19,000, while non-citizen spouses rise to $194,000.
Taxpayers should review withholding via the IRS Tax Withholding Estimator tool, especially if itemizing drops due to the higher standard deduction — 90 percent of filers claim it. For self-employed watermen in Solomons or contractors in La Plata, quarterly estimates may need tweaks. Local certified public accountants, like those affiliated with the Maryland Association of CPAs, report increased queries from Patuxent River families planning moves or retirements.
The IRS ties adjustments to chained CPI since 2018, a formula capturing substitution effects in spending — buying chicken over beef as prices shift — for more precise inflation tracking. This replaced the traditional CPI, slowing bracket growth by about 0.3 percent yearly and raising long-term revenue by $1.6 trillion over a decade, per Joint Committee on Taxation estimates.
In Southern Maryland, where median household income hovers near $95,000 — buoyed by defense jobs but tempered by seasonal tourism dips — these changes promote equity. A Lexington Park couple with two kids might claim the $2,000 child tax credit, now $2,200 maximum under the new law and indexed thereafter. Yet, rising state sales taxes on IT services, effective July 2025 at 3 percent, could offset some relief for tech workers at Northrop Grumman facilities.
Experts emphasize planning: Contribute to IRAs by April 2026 for 2025 deductions, or bundle charitable gifts if itemizing. The adjustments underscore inflation’s stealth tax, but proactive steps — like adjusting W-4s by January — maximize benefits. Full details appear in IRS Publication 15-T, available online.