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Your paycheck could be a bit higher in 2026 based on the latest IRS tax classification changes and updates enacted by President Donald Trump’s “Big and Beautiful Bill.”
The IRS announced new federal income tax brackets for 2026 in October. The inflation-based changes widened the income ranges for the two lowest tax brackets by about 4% and the income ranges for the higher income brackets by about 2.3% compared to 2025. The agency also disclosed inflation adjustments for the standard deduction, capital gains classification, and other provisions.
What’s more, workers will be subject to payroll withholding changes in 2026 “on top of that” under President Trump’s new law, said Garrett Watson, director of policy analysis at the Tax Foundation. Withholding determines the amount that an employer retains for income and payroll taxes.
President Trump’s bill, signed into law in July, permanently extended the 2017 tax cuts, raised the basic deduction, expanded the child tax credit and added several temporary tax breaks. These cuts include bonus credits for seniors, expanded state and local tax credits, and tax breaks on tips and overtime pay.
Although many of these changes took effect in 2025, the IRS did not adjust the withholding tables and workers’ salaries typically remained the same through the end of the year. As a result, many people could see larger tax refunds when they file their 2025 returns in 2026, experts say.
Andrew Lautz, director of tax policy at the Bipartisan Policy Center, said that if withholding goes into effect in 2026, “people’s paychecks will go up a little bit,” assuming their income remains the same as in 2025.
“For most workers, their pay is only a few dollars unless they claim tips or overtime deductions,” he said, depending on the amount withheld.
Fiscal impact of tax rate hikes
When your tax rate increases, you earn more before reaching the next income tax rate. If earnings remain the same from 2025 to 2026, take-home pay could be slightly higher for a broader group of people. But experts say some workers won’t notice a difference.
Federal income tax brackets reflect different portions of your taxable income depending on your filing status. Calculate your taxable income by subtracting the greater of your standard deduction or itemized deductions from your adjusted gross income.
But tax adjustments are a “lagging indicator of year-over-year inflation,” and the current figure could be even higher, said Watson of the Tax Foundation.
The Consumer Price Index, a key inflation indicator, rose 2.7% in November 2025 from the previous year, the Bureau of Labor Statistics announced in December. This exceeds most of the 2026 tax adjustment.
Of course, personal inflation rates can vary depending on the goods and services consumed by a household.
