What are the tax brackets for 2026? A Complete Guide

What are the tax brackets for 2026? The 2026 federal income tax brackets keep the same seven-tier structure with rates from 10% to 37%, but with inflation-adjusted income thresholds across all filing statuses. At Pasquesi Sheppard, we work with Lake Forest and Chicago North Shore area taxpayers to understand these adjustments so they can plan effectively and avoid surprises at tax time. The IRS tweaks these brackets every year for inflation, which prevents "bracket creep" where your buying power stays flat but your tax burden climbs. The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, made permanent most individual tax provisions from the 2017 Tax Cuts and Jobs Act that were set to expire at the end of 2025.

If you're not sure how these 2026 tax brackets might affect your particular situation, feel free to contact our team for personalized guidance.

2026 Federal Income Tax Brackets by Filing Status

Your filing status decides which income thresholds apply to you. The IRS recognizes four main statuses, each with different bracket ranges that reflect various household setups and financial responsibilities. We've found that picking the right status matters a lot because it directly changes how much tax you might owe on the same income.

Single Filers and Head of Household

For single taxpayers and those filing as head of household, the 2026 tax brackets offer inflation-adjusted thresholds that might provide modest relief compared to 2025:

Head of household filers get better treatment than single filers because this status recognizes the financial burden of supporting dependents. To qualify as head of household, you must be unmarried and pay more than half the costs of maintaining a home for a qualifying person. This distinction can save thousands in taxes compared to filing single with identical income.

Married Filing Jointly and Married Filing Separately

Couples filing jointly benefit from the most generous bracket thresholds in the 2026 federal income tax brackets, while those filing separately face narrower ranges:

The income ranges for joint filers roughly double those for single filers, helping prevent the "marriage penalty" that once hit many dual-income households. We rarely see married filing separately produce tax savings unless one spouse has major medical expenses, miscellaneous deductions, or income-based student loan repayment obligations.

How Do Tax Brackets Work in a Progressive Tax System?

Tax brackets work by splitting your taxable income into chunks, with each portion taxed at its matching rate rather than applying your top rate to all income. Many taxpayers get confused about this basic concept, but we stress it because understanding the progressive structure is key for smart tax planning.

Your first chunk of income faces the 10% rate no matter what you earn total. Only after filling that bracket completely does the next portion get taxed at 12%. This pattern continues upward through all seven levels. Your highest bracket determines your marginal rate, but several lower rates apply to income below that point.

Here's a real example: A single filer with $65,000 in gross income would subtract the 2026 standard deduction of $16,100, leaving $48,900 in taxable income. The calculation works like this:

• • First $12,400 taxed at 10% = $1,240
  • Remaining $36,500 taxed at 12% = $4,380

• Total federal tax: $5,620

What Is the Difference Between Marginal and Effective Tax Rates?

Your marginal tax rate is the percentage applied to your last dollar of taxable income, while your effective tax rate represents the average percentage of your total income that goes to taxes. We explain this difference to our clients because it clarifies tax planning decisions and prevents common misconceptions.

The marginal rate matters most when deciding whether to earn extra income or push deductions into the current year. If you're in the 24% bracket, each additional dollar you earn costs 24 cents in federal income tax at that level. Your effective tax rate tells a different story by showing your true overall burden.

Calculate your effective rate by dividing total tax owed by total income. This figure always runs lower than your marginal rate because it includes all the income taxed at lower brackets. Someone in the 24% marginal bracket might have an effective tax rate of only 15% or 16% when you account for standard deductions and the graduated structure.

How to Calculate Your 2026 Tax Liability Step by Step

To calculate your 2026 tax liability, follow this systematic approach we use with our individual taxation clients:

1. Determine total income: Add wages, self-employment earnings, investment returns, rental income, and any other taxable receipts.
2. Subtract adjustments: Deduct contributions to traditional IRAs, self-employment tax deductions, student loan interest, and health savings account contributions to reach adjusted gross income (AGI).
3. Apply standard or itemized deductions: Subtract either the standard deduction or itemized deductions, whichever provides greater benefit, to arrive at taxable income.
4. Calculate tax using brackets: Apply the appropriate 2026 federal tax brackets based on your filing status, calculating tax owed on each segment of income at its corresponding rate.
5. Subtract credits: Reduce your tax liability dollar-for-dollar with any credits you qualify for, then subtract what you've already paid through withholding or estimated payments.

For Illinois residents, remember that state income tax operates separately with a flat rate, so your federal bracket planning should account for combined federal and state obligations.

2026 Standard Deduction Amounts and How They Affect Your Taxes

The 2026 standard deduction amounts increase across all filing categories to reflect inflation adjustments, effectively shifting some income out of taxation entirely:

These higher amounts mean fewer taxpayers will benefit from itemizing. When your mortgage interest, state and local taxes (up to $10,000), charitable contributions, and medical expenses don't exceed the standard amount, you gain nothing from tracking these expenses.

New for 2026: The OBBBA introduced a $6,000 senior deduction for taxpayers aged 65 and older. This deduction is available whether you itemize or take the standard deduction. It phases out at a 6% rate for incomes above $75,000 (single filers) or $150,000 (married filing jointly).

What Changed From 2025 to 2026 Tax Brackets?

The IRS adjusts tax brackets annually using the chained Consumer Price Index to prevent "bracket creep", where your buying power stays flat but your tax burden climbs. The 2026 threshold increases mean you can earn more income while staying in the same rate tier compared to last year.

Beyond bracket adjustments, the 2026 changes also affect:

• Phase-out thresholds for various credits and deductions, potentially making you newly eligible or ineligible for certain benefits
• Retirement contribution limits, which we detail in the planning section below

Tax Planning Strategies to Optimize Your Bracket Position

Strategic planning helps you potentially cut tax liability while maximizing after-tax income. The key lies in controlling when income gets recognized and deductions are claimed. Our business advisory services help business owners and self-employed individuals develop comprehensive approaches tailored to their specific situations.

Effective strategies often involve coordination across multiple years rather than optimizing a single tax return in isolation.

Timing Income and Deductions

Shifting income between years might offer tax benefits when done strategically. If you expect to be in a lower bracket next year due to retirement, sabbatical, or reduced work hours, deferring year-end bonuses or consulting income into January could save thousands. Conversely, accelerating income into the current year makes sense when you anticipate higher rates ahead.

Deduction timing works in reverse. Accelerating deductible expenses into years when you're in higher brackets maximizes their value. Consider:

• Paying January mortgage interest in December
• Making January's estimated state tax payment before year-end
• Bunching charitable contributions into alternating years to exceed the standard deduction threshold

Illinois taxpayers face unique considerations since the state uses a flat income tax rate. Coordinating federal and state timing strategies demands attention to both systems simultaneously.

Maximizing Retirement Contributions

Retirement account contributions deliver immediate tax savings while building long-term wealth. Traditional 401(k) and IRA contributions reduce current-year taxable income dollar-for-dollar, which can keep you out of higher brackets entirely when you're near threshold amounts.

2026 Contribution Limits:

Important change for 2026: Employees age 50 and older who earned more than $150,000 in the prior year must make their 401(k) catch-up contributions on a Roth (after-tax) basis rather than pre-tax. This SECURE 2.0 requirement applies to 401(k), 403(b), and governmental 457 plans but does not affect IRAs.

Choosing between traditional and Roth accounts involves predicting future tax rates. Traditional contributions make sense when current rates might exceed expected retirement rates. Roth conversions and contributions could work better when you're in lower brackets now but expect higher income later.

Health savings accounts offer triple tax benefits when paired with high-deductible health plans: contributions reduce current taxable income, growth occurs tax-free, and qualified medical withdrawals face no taxation. These accounts can function as supplemental retirement vehicles when you pay medical expenses out-of-pocket and let the balance compound.

How Much to Set Aside for Taxes

If you're wondering how much to reserve for taxes, the answer depends on your bracket position and income consistency. Self-employed individuals should typically set aside 25% to 35% of net income to cover federal income tax, self-employment tax, and state obligations.

Start Planning for 2026

Understanding the 2026 federal income tax brackets positions you to make informed financial decisions throughout the year. We help clients throughout Lake Forest and the Chicago North Shore navigate these complexities to potentially minimize their tax burden legally and effectively.

The information provided here is for educational purposes only. Tax situations vary considerably based on individual circumstances, and this guide should not be considered personalized tax advice. We recommend consulting with a qualified CPA to discuss your specific situation. Contact Pasquesi Sheppard to schedule a consultation about your 2026 tax planning needs.