Americans could get some financial relief next year when the IRS adjusts its federal income tax brackets for inflation, a change that could help lower taxes for millions of households.
Each fall — typically in October or November — the IRS announces inflation adjustments that affects everything from the tax brackets people are subject to based on their income to the size of the standard deduction. Some experts are already projecting those changes by analyzing the same inflation data the tax agency uses as part its annual reset.
Based on that analysis, the IRS is likely to apply an inflation rate of 2.7% in adjusting its brackets and other items, according to Bloomberg Tax. It based its projection on chained Consumer Price Index data for the past 12 months.
Separately, the bottom two tax brackets will see a bigger adjustment next year because of the Republicans’ “big, beautiful” tax and spending law, which applies a more generous inflation bump for those bands. Those brackets will see a roughly 4% increase in their income thresholds next year, Bloomberg Tax calculated.
The IRS tweaks those thresholds to avoid so-called “bracket creep,” which can occur if the bands fail to keep up with inflation. Without those annual adjustments, workers who get a cost-of-living pay increase could be pushed into a higher tax bracket even though their standard of living hasn’t changed.
“If they didn’t do it year after year, for example with the standard deduction, it would become less and less meaningful each year for taxpayers,” Amber Gorski, an analyst at Bloomberg Tax and Accounting, told CBS MoneyWatch.
In other words, you’ll have to earn more income next year to reach each higher band of taxation. For instance, a single taxpayer who earns $50,000 in 2025 would have a top tax rate of 22%, but in 2026 their highest marginal rate would be 12%, according to Bloomberg’s projections.
How the adjustments could impact you
Some Americans could see a tax break due to the higher thresholds for each bracket.
“Going into 2026, they could use that information to estimate what their tax return potentially is going to be, and what they might owe in taxes,” Gorski said.
On top of the higher income thresholds for 2026, some seniors and workers could also benefit from changes implemented under the “big, beautiful” bill. Those include an extra $6,000 senior deduction and the elimination of some taxes on tipped income and overtime pay for qualifying workers.
The passage of the tax and spending bill in July ensures that next year’s tax bracket rates will remain the same. That means the individual tax rates will remain at 10%, 12%, 22%, 24%, 32%, 35% and 37%, although the thresholds for each band will edge higher because of the inflation adjustments.
Without the new tax law, enacted by President Trump in July, the bracket rates would have reverted to their levels before the 2017 Tax Cuts and Jobs Act. Prior to that law, for instance, the highest individual income bracket stood at 39.6%.
The IRS has based its annual inflation adjustments on the so-called “chained Consumer Price Index,” as required by the 2017 Tax Cuts and Jobs Act. Bloomberg notes that some of its projections could vary slightly from the IRS’ official announcement, which typically arrives in October.
“The IRS will issue authoritative guidance, as it usually does, sometime between mid-October and early November,” an IRS spokesman told CBS MoneyWatch.
How tax brackets work
There’s a common misconception that your top tax rate is what you pay on the entire amount of your annual income, but that’s incorrect. Each bracket represents the percentage you’ll pay in taxes on each slice of income within that band.
Take the example of the worker who earns $50,000 per year. In 2026, that taxpayer would pay 10% on the first $12,400 of earned income, and then 12% on any income above $12,401 and up to $50,400.
“Every individual will have more of their income pulled into those lower rates than last year” because of the income adjustments, Gorsk explained.
