Circulated biweekly to business clients since 1925
Reported from Washington, D.C. • kiplinger.com • Vol. 101, No. 1
View The Kiplinger Tax Letter Archive
Washington, December 30, 2025
| Highlights |
Tax Brackets Updated tables Capital Gains Income thresholds IRAs & Plans Contribution limits Education Student loans Health Care Premium tax credit Business Taxes Asset expensing |
Dear Client:
The new year brings lots of tax changes. Some key provisions in the “One Big Beautiful Bill” first take effect on 2026 returns to be filed in 2027. Other changes reflect rising year-over-year inflation.
We will focus here on tax changes for 2026.
Changes to charitable write-offs begin in 2026.
Nonitemizers can deduct charitable cash gifts of up to $1,000. The amount is $2,000 for joint filers.
Itemizers and C corps don’t fare as well.
Their charitable deductions get a haircut. Donations claimed by individuals on Schedule A are deductible only to the extent that they exceed 0.5% of adjusted gross income. Charitable gifts made by C corps are deductible only to the extent they exceed 1% of taxable income. Excess charitable donations can be carried forward five years.
Three breaks for child and dependent care are bigger, beginning in 2026: First, the maximum child and dependent care credit increases to $1,500 for one dependent and $3,000 for two or more dependents. Second, working parents can contribute up to $7,500 to a dependent-care flexible spending account at their workplace. Third, employers that provide child care for their workers are eligible for a tax credit of up to $500,000…$600,000 for smaller employers.
Upper-income individuals will see their total itemized deductions phased out, starting in 2026. That’s because the OBBB caps the value of itemizations deducted on Schedule A for wealthy individuals at the 35% federal income tax rate.
Losses of gamblers are further limited, beginning in 2026. Gamblers report winnings on Schedule 1 of the Form 1040. Only taxpayers who itemize on Schedule A can claim gambling losses. For 2025 and earlier years, gambling losses are deductible to the extent of winnings reported on Schedule 1. Beginning in 2026, only 90% of losses can be deducted on Schedule A to the extent of reported winnings.
Tax credits for electric cars and energy-efficient home improvements are gone. The up-to-$7,500 credit for buying electric vehicles ended after Sept. 30, 2025. Ditto for the qualified commercial clean-vehicle credit. The residential clean-energy credit and the energy-efficient home improvement credit expire at the end of 2025.
Several clean-energy business tax breaks begin to expire in or after 2026: Ending after June 30, 2026, are credits for alternative-fuel-vehicle refueling property and new energy-efficient homes. The energy-efficient commercial building deduction will continue to apply to property in which construction begins before July 1, 2026. The clean-electricity production credit for wind and solar projects has a tricky end date.
The 1099-MISC and 1099-NEC filing threshold rises from $600 to $2,000, beginning with 2026 forms sent out in 2027. Casinos are anticipating that the $2,000 figure also applies to W-2G reporting of slot or keno winnings.
The federal income tax brackets for individuals are a bit wider for 2026 because of inflation during the 2025 fiscal year. Tax rates are unchanged.
Tax rates on long-term capital gains and qualified dividends do not change.
But the income thresholds to qualify for the various rates go up for 2026. The 0% rate applies at taxable incomes up to $98,900 for joint filers, $66,200 for heads of household and $49,450 for singles. The 20% rate starts at $613,701 for joint filers, $579,601 for heads of household and $545,501 for single filers. The 15% rate is for filers with taxable incomes between the 0% and 20% break points.
AMT exemptions rise for 2026 to $140,200 for joint filers and $90,100 for single filers. The exemption phaseout zones begin at $1,000,000 for joint filers and $500,000 for singles. The 28% AMT rate kicks in above $244,500.
Standard deductions are a bit higher for 2026. Joint filers get $32,200, plus $1,650 for each spouse 65 or older. Singles can take $16,100…$18,150 if age 65 or up. Heads of household get $24,150 plus $2,050 once they reach 65. Blind people receive $1,650 more ($2,050 if unmarried and not a surviving spouse).
Key dollar limitations on retirement plans and IRAs are higher in 2026.
The maximum 401(k) limit is $24,500. And catch-ups change. People born before 1977 can put in $8,000 more. The catch-up for people age 60-63 is $11,250.
The cap on most SIMPLEs rises to $17,000, plus $4,000 more for people 50 and older. If age 60, 61, 62 or 63 in 2026, the $4,000 figure is replaced with $5,250.
The 2026 contribution cap for traditional and Roth IRAs increases to $7,500, plus $1,100 as an additional catch-up contribution for individuals 50 and older.
The income ceilings on Roth IRA payins increase. Contributions phase out at AGIs of $242,000 to $252,000 for couples and $153,000 to $168,000 for singles.
2026 deduction phaseouts for traditional IRAs are at higher income levels, from AGIs of $129,000 to $149,000 for couples covered by workplace retirement plans and $81,000 to $91,000 for singles. If only one spouse is covered, the phaseout for deducting contributions for the uncovered spouse is $242,000 to $252,000 of AGI.
The IRA qualified charitable distribution cap is $111,000 for 2026. People who are 70½ or older can transfer up to $111,000 from their traditional IRAs directly to charity. QCDs can count as part of your required minimum distribution, but they are not taxable, and they are not included in your adjusted gross income.
A new rule that applies to catch-up contributions to 401(k)s begins in 2026. Employees who are 50 and older, and whose annual compensation exceeds $150,000 in 2025, can make 401(k) catch-up contributions only to a post-tax Roth 401(k).
And an exception to the 10% penalty on early 401(k) payouts goes into effect: You can take $2,600 of pre-59½ distributions per year to pay long-term-care premiums.
A new type of tax-advantaged savings account starts in 2026. Trump accounts can be set up for children under age 18 who have a Social Security number. Beginning July 4, 2026, up to $5,000 can be contributed to the account each year. The government will also put in $1,000 for each kid born in 2025-28. Most contributions aren’t deductible. Payouts can’t be taken while the beneficiary is under 18. After that, distributions are taxed in a manner akin to rules that apply to traditional IRA payouts.
More money can be taken out of 529 plans tax-free to fund K-12 education. Beginning in 2026, you can withdraw up to $20,000 per year for this type of schooling…an increase of $10,000 from the previous cap. And more K-12 expenses are covered. There’s no limit on the amount of tax-free 529 payouts to pay for college.
An income tax easing on forgiven student-loan debt has been repealed. Most student-loan indebtedness, including parent PLUS loans, forgiven in 2021-25 is tax-free for federal income tax purposes. This is an exception to the general rule that cancellation of debt income is taxable. The OBBB didn’t extend the relief, so college loans that are forgiven in 2026 or later years are again generally taxable.
Teachers can deduct up to $350 for their out-of-pocket expenses in 2026. The deduction cap is $700 for spouses who are both teachers and file a joint return.
The adoption credit is taken on up to $17,670 of qualified expenses in 2026. Up to $5,120 of the credit is refundable. The full tax credit is available for a special-needs adoption even if it costs less. For 2026, the adoption credit begins to phase out for filers with modified AGIs over $265,080 and ends at $305,080.
The lifetime estate and gift tax exemption for 2026 deaths rises to $15 million. The annual federal gift tax exclusion stands pat at $19,000 per donee in 2026. This means that you can give up to $19,000 to each of your relatives or any other person without having to file a gift tax return or tap your lifetime estate and gift tax exemption.
Fewer people will qualify for the health premium tax credit in 2026.
And the credit will be lower for many. The PTC is an Obamacare subsidy for eligible individuals who buy health insurance through the marketplace. Temporary PTC expansions that were enacted in 2021 expire at the end of 2025. Many health-care advocates hope Congress will tackle the PTC issue in early 2026.
The annual cap on deductible payins to health savings accounts rises in 2026 to $4,400 for account owners with self-only coverage and $8,750 for family coverage. Individuals who are 55 or older can contribute an additional $1,000 to their HSAs.
Eligibility for HSAs is restricted. You must have a high-deductible health plan. The minimum allowable policy deductible for 2026 is $1,700 for self-only coverage and $3,400 for family coverage. Also, out-of-pocket costs, including copayments, can’t exceed $8,500 for self-only coverage and $17,000 for family coverage in 2026. Starting in 2026, HDHPs include bronze-level and catastrophic health plans.
Workers covered by health flexible spending accounts can defer up to $3,400.
The cap on tax-free employer-provided parking for 2026 is $340 per month. The exclusion for mass transit passes and commuter vans matches that amount.
U.S. taxpayers working abroad have a $132,900 income exclusion for 2026.
The Social Security annual wage base for 2026 is $184,500, an $8,400 hike. The Social Security tax rate on employers and employees remains 6.2%. Both pay the 1.45% Medicare tax on all compensation, with no cap. Individuals also pay an additional 0.9% Medicare surtax on wages and self-employment income over $200,000 for singles and $250,000 for couples. The surtax doesn’t hit employers.
Expensing is higher. $2,560,000 of business assets can be expensed in 2026. This limit phases out dollar-for-dollar once more than $4,090,000 of assets are placed in service in 2026. Note that the amount of business assets expensed can’t exceed the business’s taxable income. Bonus depreciation doesn’t have this rule.
The OBBB revived 100% first-year bonus depreciation and made it permanent.
A key dollar threshold on the 20% deduction of pass-through income goes up in 2026. Self-employeds and owners of LLCs, S corporations and other pass-throughs can deduct 20% of their qualified business income, subject to limitations for individuals with taxable income of more than $403,500 for joint filers and $201,750 for others.
The 2026 standard mileage rate for business driving is 72.5 cents per mile. The mileage rate for medical travel and military moves falls to 20.5 cents per mile. And the charitable driving rate, which is fixed by law, remains 14 cents a mile.
A new tax aims to deter noncitizens in the U.S. from sending money abroad.
The OBBB levies a 1% excise tax on remittance transfers made after 2025. Transfers by U.S. citizens and permanent residents would generally be exempt, as would cash transfers from most U.S. bank accounts, credit cards and debit cards. The tax would be paid by the sender and collected by the money transfer provider.
More changes are sure to come in 2026…from IRS, the courts and Congress.
And, as always, we will report on the key ones, and how you will be affected.
Yours very truly,
Joy Taylor, Editor
December 30, 2025
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