The Ledger: 2026–2027 Federal Tax Updates (Individuals) – What’s Changing & What to Watch

Catherine Raeside, CPA
Senior Tax Manager

Several federal tax law changes take effect beginning in 2026, and many dollar limits will update again in 2027 due to inflation adjustments. Below is a quick, client-friendly summary of what may affect our individual clients the most.

Income tax rates, standard deduction & personal exemptions

• Tax rates/brackets: The current bracket structure continues in 2026 and later (with inflation adjustments over time).
• Standard deduction (2026): $16,100 (Single/MFS), $24,150 (HOH), $32,200 (MFJ/surviving spouse).

State & local taxes (SALT) for itemizers

• SALT cap: $40,400 for 2026 (indexed upward 1% annually through 2029), with a reduction for some higher-income taxpayers. Practical impact: even if you itemize, your state income/property tax deduction may be limited.

Extra deduction for seniors (age 65+)

• Senior deduction (temporary): For tax years 2025–2028, a taxpayer who is age 65 or older by year-end may qualify for a $6,000 senior deduction. Single and Head-of-Household filers may claim it if otherwise eligible. Married taxpayers must file jointly to claim it (so Married Filing Separately does not qualify). On a joint return, each spouse who is age 65 or older may qualify for up to $12,000 total subject to income limitations with the deduction being reduced once the taxpayers Modified Adjusted Gross Income is above $75,000 for single filers and $150,000 for married filing joint filers.

Kids, dependents & childcare

• Child Tax Credit (CTC): $2,200 per qualifying child for 2026; estimated $2,300 for 2027 (inflation-adjusted estimate). The credit for other dependents remains unchanged at $500 per qualifying dependent.
• Child & Dependent Care Credit (bigger starting 2026): Beginning 2026, the maximum credit rate increases to 50% (then phases down based on income).

Workers: temporary deductions for tips & overtime

• Qualified tips deduction: Up to $25,000 for 2025–2028, reduced at higher income levels; applies only to tips that are reported.
• Qualified overtime deduction: Up to $12,500 ($25,000 MFJ) for 2025–2028, reduced at higher income levels; for 2026 and later, the deductible amount must be separately reported on Form W-2.

Charitable giving (new rules starting 2026)

• Non-itemizers (standard deduction filers): Beginning 2026, you may be able to deduct up to $1,000 of qualifying cash charitable gifts ($2,000 MFJ) even if you take the standard deduction.
• Itemizers: Beginning 2026, charitable gifts are only deductible to the extent they exceed 0.5% of AGI. Practical impact: smaller charitable totals may no longer help unless your giving clears the floor.
• High-income limitation: Beginning 2026, a new rule may reduce the benefit of itemized deductions for some higher-income taxpayers.

Gambling (new limitation starting 2026)

• Losses are capped at 90% and can’t exceed winnings: Beginning in 2026, the deductible portion is generally limited to 90% of losses, and only up to your winnings for the year.

Home & vehicle-related deductions

• Mortgage insurance premiums (PMI/MIP): Beginning 2026, mortgage insurance premiums on certain home loans may be treated like deductible mortgage interest (subject to income limits).
  Qualified new vehicle-loan interest (temporary): For 2025–2028, you may be able to deduct up to $10,000 of interest on certain new U.S.-assembled vehicle loans (subject to income limits and other rules).

Retirement & benefits (key 2026 limits; many adjust for 2027)

• 401(k)/403(b)/457 elective deferrals (2026): $24,500.
• Catch-up contributions (2026): $8,000 generally; $11,250 for ages 60–63 (if plan allows). Dependent care benefits (DCAP exclusion): For 2026, exclusion increases to $7,500 ($3,750 MFS) and amounts above the limit are taxable wages (still reported on Form W-2).
• Health FSA (2026): $3,400 salary reduction limit; $680 maximum carryover to the 2027 plan year (if plan permits). Practical impact: revisit your annual election during benefits enrollment.

If you have questions on how these tax laws may impact you, please call our office and set up a time to discuss this with your client manager.