The Internal Revenue Service has announced inflation adjustments for more than 60 tax provisions for tax year 2026, including tax rate schedules, credits and deductions. The updates, outlined in Revenue Procedure 2025-32, incorporate new amendments under the One Big Beautiful Bill Act (OBBBA). These adjustments apply to tax returns filed in 2027.

The annual update reflects the IRS’s effort to ensure tax thresholds keep pace with rising living costs. It also integrates several new provisions from the OBBBA, which Congress passed to simplify the tax code and expand key benefits for individuals, families and small businesses.

Standard deduction sees notable increase

The standard deduction claimed by most taxpayers continues to rise. For tax year 2026, the deduction increases to:

Filing Status	TY 2025 Under OBBB	TY 2026 Under OBBB
Single; married filing separately	$15,750	$16,100
Married filing jointly; surviving spouses	$31,500	$32,200
Head of household	$23,625	$24,150

The larger deduction means more income is shielded from federal tax, especially benefiting middle-income households.

Tax brackets hold steady, thresholds rise

For 2026, the top individual tax rate remains 37% for single taxpayers with income over $640,600 and $768,700 for married couples filing jointly. Other brackets reflect modest inflation adjustments.

• 35% for incomes over $256,225 ($512,450 for joint filers)
• 32% for incomes over $201,775 ($403,550 for joint filers)
• 24% for incomes over $105,700 ($211,400 for joint filers)
• 22% for incomes over $50,400 ($100,800 for joint filers)
• 12% for incomes over $12,400 ($24,800 for joint filers)
• 10% for incomes up to $12,400 ($24,800 for joint filers)

These incremental increases help taxpayers avoid “bracket creep,” where inflation pushes income into higher tax rates.

Higher exemptions and credits for families

Several credits and exemptions will rise in 2026, providing additional relief to individuals and families.

• Alternative minimum tax (AMT): The exemption amount increases to $90,100 for single filers and $140,200 for married couples filing jointly. Phaseouts begin at $500,000 and $1 million, respectively.
• Estate tax: The basic exclusion amount for estates of decedents who die in 2026 rises to $15 million, up from $13.99 million in 2025.
• Adoption credit: The maximum credit increases to $17,670, with a refundable portion of $5,120.
• Employer-provided childcare credit: A major change under the OBBBA raises the maximum credit for employer-provided childcare facilities from $150,000 to $500,000 or up to $600,000 for eligible small businesses.

Inflation-indexed adjustments affect daily life

Beyond the headline tax brackets, several inflation-indexed provisions affect everyday benefits and expenses.

• Earned income tax credit (EITC): For taxpayers with three or more qualifying children, the maximum EITC for 2026 will be $8,231.
• Qualified transportation fringe benefit: Monthly limits for transportation and parking increase to $340.
• Health flexible spending accounts (FSAs): The salary reduction limit increases to $3,400, with a carryover limit of $680.
• Medical savings accounts (MSAs): Deductible and out-of-pocket maximums rise modestly for both self-only and family coverage.
• Foreign earned income exclusion: The exclusion increases to $132,900 for 2026.
• Gift tax exclusion: The annual exclusion remains $19,000, while the exclusion for gifts to non-citizen spouses rises to $194,000.

Items unchanged by inflation adjustments

Some provisions remain fixed, either by statute or by design of the OBBBA.

• Personal exemptions: The personal exemption remains at zero. The OBBBA made this elimination permanent, though it added a new senior deduction elsewhere in the law.
• Itemized deductions: The limitation on itemized deductions, suspended since 2018, is now permanently removed under the OBBBA. However, taxpayers in the highest 37% bracket face a cap on the tax benefit of those deductions.
• Lifetime learning credit: The income phaseout range for this credit remains between $80,000 and $90,000 ($160,000–$180,000 for joint filers).

Looking ahead

The IRS inflation adjustments for 2026 aim to balance tax fairness and simplicity. For most taxpayers, the higher thresholds and credits will mean slightly lower effective tax burdens, especially when combined with the expanded benefits from the One Big Beautiful Bill Act.

Tax return preparer penalties are all too real when they begin impacting your finances and reputation. Tax preparers who understate taxpayers’ liabilities may face penalties that range from $1,000 to $5,000, or 50% to 75% of the preparation fees. To steer clear of these penalties, it’s critical to understand both the penalties and their underlying standards which are based on qualitative judgments rather than clear-cut bright-line tests.

Major standards

The three standards listed below are key tools to utilize when analyzing a tax return position. They are vital when the position is slightly contrary to the usual tax law interpretation but may be somewhat validated by other authorities such as case law.

Substantial authority: Authority comes from the relevance, persuasiveness and document type: a revenue ruling has more weight than a private letter ruling, for example. The authoritative list of substantial authority is found in Reg. §1.6662-4(d)(3)(iii).

Reasonable basis: In cases where substantial authority is not met, they could still meet the reasonable basis standard. Consider a charitable deduction based on resale markets rather than thrift store value. While some case law may support the resale market position, the weight of authority in Regs §1.170A-1(c)(2) and IRS Pub. 561, Determining the Value of Donated Property, favors thrift store value. This position has reasonable basis but not substantial authority.

Adequate disclosure: Providing a detailed explanation that attaches to the return may be the remedy for a questionable position. If disclosed on Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, penalties could be avoided under the reasonable basis standard. Follow the annual disclosure list in Rev. Proc. 2024-44 for when return-level disclosure is deemed sufficient to reduce understatement exposure on 2024 forms. Watch for the 2025 Rev. Proc. update; NATP will alert you when it is available.

A breakdown of the understatement penalties

Two preparer penalties may apply in the case of tax liability understatements:

§6694(a): unreasonable position. Applies when a filed position lacks substantial authority and, if disclosed, doesn’t meet reasonable basis. Disclosure via Forms 8275 or 8275-R may mitigate the potential penalties, but only if the position clears reasonable basis, like the example above. The penalty is the greater of $1,000 or 50% of the return preparation fee.

§6694(b): willful or reckless conduct. Considered intentional rule-breaking or gross indifference to the law. Examples would be inventing dependents or manufacturing losses for a non-existent business. Intent or knowledge of the rule-breaking is the key offending factor here. The penalty is the greater of $5,000 or 75% of the return preparation fee.

Who is affected

Penalties expose both the individual preparer and the firm. The IRS typically penalizes the person “primarily responsible” for the position, but firms may also face penalties up to a percentage of the income derived from the work.

Penalty relief

Reasonable cause and good-faith procedures may qualify for relief only if backed by real systems and supervision, followed by timely corrective action (see Tracy v. Commissioner, T.C. Summ. Op. 2023-20). In Tracy, an ill and aging lawyer whose assistant withheld employment taxes was granted relief under reasonable cause, not because of the illness and age, but because systems were in place that would have prevented the trust tax abuse under normal circumstances. Mere forgetfulness or illness is insufficient; ordinary and prudent business practices that are otherwise workable attract the reasonable cause remedy.

Lesser-known penalties include:

• §6700 (abusive shelters)
• §6701 (aiding and abetting understatements)
• §6707/§6707A (reportable transactions)
• §6708 (advisee lists)
• §6713/§7216 (improper use/disclosure)
• §7206/ §7207 criminal provisions and
• §7407/§7408 injunctions

Clear steps to avoid understatement preparer penalties

• Institutionalize due diligence. Use written checklists, engagement scopes and second-review protocols. Document inquiries on dubious positions. Don’t allow clients who urge willful or unreasonable conduct to sway your professional judgment.
• Align positions to authority. Build files with current, on-point authorities; weigh them against contrary authority. If substantial authority can’t be reached, obtain reasonable basis and proper disclosure (Forms 8275 and 8275-R).
• Disclose intentionally. Using the Form 8275 series, apply the annual disclosure list found in Rev. Proc. 2024-44 for adequate disclosure on 2024 returns where it helps reduce §6694(a) exposure.

Protect your reputation and finances by avoiding penalties for unreasonable positions or reckless conduct. Allow your professional judgment to keep you and your clients on track.

Be sure to read the full How-To article on penalties in the October 2025 TAXPRO.

As tax season approaches, one of the most meaningful ways tax professionals can give back is through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. These programs provide free, basic tax return preparation for qualifying taxpayers, and the IRS is once again calling for volunteers for the upcoming filing season.

What VITA and TCE do

VITA and TCE deliver no-cost tax preparation for people who need it most. VITA helps low to moderate income taxpayers, people with disabilities and those with limited English skills. TCE focuses on taxpayers age 60 or older, especially those with pension and retirement questions.

These programs operate through IRS partners at thousands of sites across the nation. Volunteers are certified by the IRS and use approved training and software to prepare returns. VITA has been in operation for over 50 years and remains a trusted source of free tax assistance.

Why it matters for communities and your practice

• Expand access: Many taxpayers cannot afford paid preparation or do not feel comfortable filing on their own. VITA bridges the gap and ensures more people claim eligible credits.
• Build goodwill: Your participation shows a commitment to public service. Clients and potential clients notice when professionals step up for their communities.
• Develop skills: Volunteers sharpen their knowledge of basic tax law and improve their communication skills.
• Create connections: Working face-to-face with taxpayers builds trust. Some VITA clients later return for paid services when their needs become more complex.

How to get involved

• Volunteer opportunities: The IRS is recruiting volunteers now for the filing season. You can sign up between October and January. Many sites offer flexible hours, including evenings, weekends and virtual options. Within about two weeks of registering, you’ll be connected to a local site and receive an invitation to a virtual orientation.
• Training and certification: No prior experience is necessary. Volunteers complete IRS-provided training and certification before working with taxpayers. Certification levels determine which types of returns you can prepare, all within the program’s scope. This certification is required annually.
• Roles beyond return preparation: Sites also need interpreters, greeters, quality reviewers, instructors, IT support and outreach help. Each role is essential to smooth operations.
• Locating sites: Tax pros and clients can find VITA or TCE locations through the IRS site locator tool. Some offer “Self-Prep” options where taxpayers prepare their own returns using software with volunteer guidance.

Benefits for taxpayers

• Free return preparation: Eligible taxpayers can have their basic returns prepared at no cost.
• Reliable service: Volunteers are IRS-certified and use official software and training to ensure accuracy.
• Guided help: Some locations offer supervised self-prep options, combining autonomy with volunteer support.
• Convenient access: Sites are often located in schools, libraries, churches or community centers, making them easy to reach.

Numbers show the impact

Every year, VITA and TCE help millions of taxpayers file accurate returns and claim valuable credits. For many, these refunds are critical to their financial stability. IRS grants also support these programs, ensuring they continue to serve underserved populations nationwide.

What’s next

The VITA and TCE programs embody the best of what tax professionals can offer, like their expertise, time and commitment to their community. For practitioners, volunteering is more than service. It is a chance to showcase your firm’s values, expand your professional network and help taxpayers who need guidance the most.

If you already volunteer, consider stepping into a leadership role, such as site coordinator, trainer or mentor. If you’re new, now is the time to explore how you can participate. Your involvement can make the tax season less stressful and more successful for the people you serve.