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5 Shocking Ways The New Tax Law Changed Whether Federal Taxes Will Go Up In 2026

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The widespread fear of a massive federal tax hike in 2026, driven by the scheduled expiration of the Tax Cuts and Jobs Act (TCJA) of 2017, has been largely neutralized by new legislation. As of December 20, 2025, the simple answer for most American taxpayers is that their federal income taxes are not expected to rise in 2026, and in fact, many may see larger refunds due to significant new provisions. This dramatic shift is the result of the "One Big Beautiful Bill Act" (OBBBA), which was signed into law earlier this year, fundamentally rewriting the tax code and preventing the "tax cliff" that was looming.

The common assumption that 2026 would be a year of painful tax increases was based on the original sunset date for the TCJA’s individual provisions, which were set to revert to pre-2018 levels. However, the OBBBA has made permanent or extended key tax cuts, while simultaneously introducing new rules that increase complexity, particularly for high-income earners and those who itemize. Understanding these five major legislative changes is crucial for planning your financial future.

The Looming Tax Cliff: What Was Supposed to Expire in 2026?

The curiosity surrounding a 2026 tax increase stems directly from the design of the 2017 Tax Cuts and Jobs Act (TCJA). To comply with Senate budget rules, the individual tax cuts were temporary, scheduled to expire on January 1, 2026. Without Congressional action, the tax code was set to snap back to its previous structure, resulting in a tax increase for an estimated 75% of taxpayers.

The original expiration would have caused several major changes that would have negatively impacted the majority of American households:

  • Individual Marginal Tax Rates: The seven tax brackets would have reverted to higher pre-TCJA rates (e.g., the 24% bracket would have become 25%, and the 32% bracket would have become 33%).
  • Standard Deduction Reduction: The nearly doubled Standard Deduction would have been cut almost in half, forcing millions of taxpayers who previously took the standard deduction to itemize their deductions.
  • Child Tax Credit (CTC) Rollback: The expanded $2,000 Child Tax Credit would have reverted to a less generous $1,000 per child, with significantly stricter refundability rules.
  • Personal Exemptions Return: The elimination of Personal Exemptions under the TCJA would have ended, bringing them back into the tax code.

This "tax cliff" was the central issue dominating financial planning discussions. However, the political landscape and subsequent legislation, namely the OBBBA, have provided clarity, largely eliminating the most severe elements of this scheduled hike for middle and lower-income taxpayers.

5 Major Legislative Changes That Define Your 2026 Federal Taxes

The "One Big Beautiful Bill Act" (OBBBA) is the key piece of legislation that overrides the scheduled TCJA expiration. Signed into law, the OBBBA ensures that the tax landscape for 2026 looks significantly different—and more favorable—than the feared rollback.

1. Individual Income Tax Rates and Brackets Remain Low

The most significant relief for most taxpayers is the continuation of the current, lower marginal tax rates. The OBBBA extended the seven-bracket structure, ensuring that the top individual tax rate remains at 37% for 2026. This legislative action permanently prevented the widespread rate increases that would have occurred if the TCJA had been allowed to expire without intervention. The continuity of these lower rates provides stability for financial planning across all income levels.

2. The Standard Deduction Continues to Increase

Far from being cut in half, the Standard Deduction is actually scheduled to increase for the 2026 tax year. The Internal Revenue Service (IRS) has released inflation adjustments confirming the following amounts:

  • Single Filers: Increasing to $16,100
  • Married Filing Jointly: Increasing to $32,200
  • Head of Household: Expected to see a proportional increase.

This increase means that fewer taxpayers will need to itemize, simplifying the filing process for the majority of Americans. This provision of the OBBBA is a direct continuation of the TCJA's most popular feature, ensuring that a larger portion of your income is shielded from federal taxation.

3. The Expanded Child Tax Credit (CTC) is Now Permanent

The expanded Child Tax Credit, a critical benefit for families, was one of the most significant provisions scheduled to revert. The OBBBA, however, made the $2,000 credit amount permanent. Moreover, the new law introduced an inflation adjustment to the credit amount starting in 2026, which is expected to increase its value over time, providing greater support for families. This permanent extension eliminates the risk of the credit dropping back to $1,000 and ensures that the income phase-out thresholds remain favorable for middle-income households.

4. Estate and Gift Tax Exemption Reaches New Heights

For high-net-worth individuals, the Estate and Gift Tax Exemption is not only surviving the TCJA expiration but is slated for a massive increase. For 2026, the federal lifetime exemption will rise to $15 million per individual, or $30 million for married couples. This is a significant jump from the 2025 amount of $13.99 million. This change, driven by the OBBBA, provides unprecedented relief for estate planning and wealth transfer, further reducing the likelihood of a tax increase for inherited assets.

5. The SALT Deduction Cap Sees an Increase, Not an Expiration

The State and Local Tax (SALT) deduction cap, which limits the deduction of state and local taxes to $10,000, was a highly contested provision of the TCJA. While many expected the cap to expire entirely in 2026—which would have benefited high-tax states—the OBBBA instead codified a compromise. For 2026, the SALT deduction cap will increase to $40,400 for certain income levels, a modest but significant increase from the previous limit. However, the OBBBA also introduced a new overall limitation on the tax benefit of itemized deductions for high-income filers, adding a layer of complexity for those who itemize their returns.

Key Entities and Provisions for 2026 Tax Planning

The 2026 tax year will be defined by the interplay between the original Tax Cuts and Jobs Act (TCJA) and the new One Big Beautiful Bill Act (OBBBA). While the fear of a broad tax increase has subsided, the complexity of the new rules means proactive planning is essential.

  • Tax Cuts and Jobs Act (TCJA): The 2017 law whose individual provisions were scheduled to sunset, causing the initial concern.
  • One Big Beautiful Bill Act (OBBBA): The 2025 legislation that extended or made permanent key TCJA provisions and introduced new rules, effectively preventing the "tax cliff."
  • Internal Revenue Service (IRS): The agency responsible for releasing the official 2026 tax brackets, standard deduction, and contribution limits, which are based on the OBBBA.
  • Marginal Rates: The seven individual income tax brackets, which will remain at their lower, TCJA-era levels for 2026.
  • Standard Deduction: The increased amount of $16,100 (Single) and $32,200 (MFJ) for 2026, confirmed by the IRS.
  • Child Tax Credit (CTC): Now permanently expanded to $2,000 per child and subject to inflation adjustments starting in 2026.
  • State and Local Tax (SALT) Deduction Cap: Raised to $40,400 for 2026, but not fully repealed.
  • Estate Tax Exemption: Increased to $15 million per individual for 2026, providing substantial relief for wealth transfer.
  • Itemized Deductions: Subject to a new overall limitation for high-income taxpayers under the OBBBA, increasing complexity.
  • Excess Business Losses: A provision under the TCJA that disallowed a deduction for excess business losses and was originally set to expire in 2026.

In summary, the question "Will federal taxes go up in 2026?" has a nuanced but generally positive answer: No, not for most people. The threat of the TCJA expiration was successfully mitigated by the OBBBA, which has maintained low individual rates, increased the standard deduction, and made the expanded Child Tax Credit permanent. However, the new law introduces its own complexities, making the guidance of a tax professional more valuable than ever.

5 Shocking Ways The New Tax Law Changed Whether Federal Taxes Will Go Up In 2026
Will federal taxes go up in 2026?
Will federal taxes go up in 2026?

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