Every year the IRS updates tax brackets, the standard deduction, and various other tax values to account for inflation.
In addition, in 2026, a broad range of federal tax changes will take effect for both individuals and businesses. Most of these changes arise from the One Big Beautiful Bill Act (OBBBA), while others reflect routine adjustments or the scheduled expiration or modifications of the Tax Cuts and Jobs Act of 2017 (TCJA).
In our last blog we covered changes that went into effect for 2025 tax due to the enactment of OBBBA. This blog highlights key changes and additional tax provisions for 2026 under the OBBBA and notes TCJA provisions that will remain in effect.
As always, Family Law Software taxes and projections are fully up to date with these changes and already accessible to all subscribers. Let’s dive in.
Tax Bracket Adjustments
OBBBA did not change the tax rates, but the brackets are being increased for their regular annual inflation adjustment and the tax rates will not revert to their pre-TCJA levels. The rates and bracket cutoffs are:
- 37% for incomes over $640,600 ($768,700 for married couples filing jointly);
- 35% for incomes over $256,225 ($512,450 for married couples filing jointly);
- 32% for incomes over $201,775 ($403,550 for married couples filing jointly);
- 24% for incomes over $105,700 ($211,400 for married couples filing jointly);
- 22% for incomes over $50,400 ($100,800 for married couples filing jointly);
- 12% for incomes over $12,400 ($24,800 for married couples filing jointly).
- 10% for incomes over $0.
Head of household tax bracket cutoffs are between those for single filers and those for joint filers.
Deduction for Personal Exemptions
TCJA eliminated the deduction for personal exemptions from 2018 through 2025. OBBBA eliminated the deduction permanently.
It still matters, though, which party claims the exemptions, because that designation determines who gets to claim the Child Tax Credit, which is typically worth more than $2,000 per child. There might also be a state tax exemption.
The Standard Deduction
The standard deduction is a set amount that can be deducted from total income, lowering the taxable income that is subject to taxation. The standard deduction is based on filing status, age, and whether the taxpayer is legally blind or is claimed as another filer’s dependent.
As an alternative, the tax code allows taxpayers to itemize deductions in lieu of claiming the standard deduction.
Itemized deductions are a list of eligible expenses whose total is, for some taxpayers, higher than the fixed standard deduction. Taxpayers may claim the standard deduction or the total of itemized deductions, whichever method benefits them the most.
Couples filing separate returns must either both itemize or both claim the standard deduction. This is so couples do not assign all the itemized deductions to one party and have the other claim the standard deduction, and thus realize more deductions than the law intends.
For 2026, the standard deduction increases to $32,200 for married couples filing jointly. For single taxpayers and married individuals filing separately, the standard deduction rises to $16,100, and for heads of households, the standard deduction will be $24,150. Without these increases under the OBBBA, the standard deductions would have reverted to their pre-TCJA levels.
Reduction of Itemized Deductions
Effective in 2026, there is a new reduction of itemized deductions for filers in the top tax bracket.
- The reduction will be: (2/37) * the smaller of a) itemized deductions; and b) (taxable income before itemized deductions in excess of the 37% tax bracket amount).
- One exception: taxable income for the qualified business income deduction is to be computed without this limitation.
For those people who are affected, this will reduce the deduction they can claim.
Charitable Contributions for Non-Itemizers
Historically, one could claim a deduction for charitable contributions only if one itemized deductions. Starting in 2026, however, people who claim the standard deduction can claim a deduction of up to $1,000 ($2,000 if filing jointly) for charitable donations.
In Family Law Software, if a party is claiming the standard deduction, and they have an entry for charitable contributions, the software will automatically calculate a charitable contribution deduction for their charitable donations in an amount up to the limit. The software already reflects these changes automatically, starting in 2026.
Charitable Contribution Reduction for Itemizers
Starting in 2026, the itemized deduction for charitable contributions is reduced by 0.5% of AGI. For example, if AGI is $100,000 and charitable contributions are $2,000, the deductible amount is $2,000 – (0.5% of $100,000), or $1,500. Family Law Software will do this adjustment automatically. Note that there are other limitations on charitable contributions, and Family Law Software is not tracking those limitations.
Home Mortgage Interest
In 2018, TCJA reduced the deductibility of home mortgage interest through 2025. OBBBA makes those changes permanent.
- The act permanently lowers the deduction for qualified residence interest to the first $750,000 in home mortgage acquisition debt.
- Also, interest on home equity indebtedness continues not to be deductible.
- However, the act allows certain mortgage insurance premiums on acquisition indebtedness to be counted as mortgage interest, starting in 2026.
In Family Law Software, we have decided not to implement the deduction for mortgage insurance premiums at this time, as it will not have a significant impact on taxes and adds complexity. The software will take care of the other changes automatically.
Qualified Business Income Deduction (QBID)
The QBID allows eligible self-employed individuals and owners of pass-through entities (such as partnerships and S Corporations) to deduct up to 20% of their qualified business income. The deduction helps reduce taxable income, though limits apply based on income level, business type, and wages or property owned. It’s a valuable tax benefit for many business owners seeking to lower their overall tax burden. The OBBBA made a couple of changes to the QBID:
- There is a new minimum QBID of $400 (as adjusted for inflation from 2025 rounded to the nearest $5) when a party has at least $1,000 (as adjusted for inflation from 2025 rounded to the nearest $5) of qualifying business income.
- The taxable income limitation phase-in now starts at $75,000 ($150,000 for a joint return).
- When filing jointly, the parties’ QBIDs are added together.
- These changes take effect starting in 2026, and do not apply to 2025 fillings.
Child Care Credit
Starting in 2026, the credit percentage formula is changing. The credit percentage currently ranges from 20 – 35%.
The new formula will produce a credit percentage from 20 – 50%, depending on income. The lowest percentage, 20%, will apply once AGI is more than $103,000 ($206,000 for joint returns).
The effect will be to increase the child care credit for most individuals who can claim the credit.
Alternative Minimum Tax (AMT)
The AMT is a parallel tax system designed to ensure high-income taxpayers pay a minimum amount of tax. It limits certain deductions and credits. Taxpayers must pay the higher of their regular tax or the AMT. The act makes a couple of changes to the AMT:
- The AMT exemption phase-out percentage will be 50%, starting in 2026, up from 25%.
- The OBBBA permanently extends the increased individual AMT exemption amounts of the TCJA.
- The act also reverts the exemption phaseout thresholds to 2018 levels of $500,000 ($1,000,000 in the case of a joint return), indexed for inflation thereafter.
These changes work in opposite directions: higher exemption amounts generally reduce AMT liability, while the restored, lower phase-out thresholds increase it. However, the overall effect of the Act is that far fewer individuals will owe AMT.
Trump Accounts
The bill introduces Trump Accounts, a new type of IRA designed for children.
- Each eligible U.S. child born between 2025 and 2028 receives a $1,000 government-funded deposit.
- Parents, relatives, or employers may contribute up to $5,000 annually, with employer contributions capped at $2,500 (both indexed for inflation).
- Contributions are not tax-deductible, and funds must be invested in low-cost stock index funds.
- Withdrawals are prohibited until the age of 18, after which the account functions like a traditional IRA.
- Accounts may be opened starting in 2026.
If a Trump Account is established, it can be entered in Family Law Software as a Roth IRA and indicate that it belongs to a child. This setup reflects the non-deductible nature of the contributions and accommodates employer contributions. As distributions from Trump Accounts will be taxable (unlike Roth IRA withdrawals), we are not exactly capturing all of the characteristics of these accounts. As distributions are not likely to occur for many years, this approach provides an adequate representation of the new account type within the software.
Family Law Software Tax Settings
Starting the last week of December, all new case files will automatically use 2026 as the year for income tax calculations, support purposes, and financial projections.
In the Cloud, existing case files will automatically update to use 2026 as the current year. In the Desktop software, you will see an option to update the tax year when you next open the file.
If you would like to continue to use 2025 taxes for your case, you can set the year back to 2025. The way to do this is to go to Settings > Assumptions > “Start Year,” and enter “2025.”
You can also prevent the software from updating to 2026 the next time the file opens, by finding the checkbox at Settings > Assumptions > Start Year labeled “Automatically update Start Year,” and clearing it.
Family Law Software is your up-to-date solution for complete and accurate tax calculations, no matter how simple or how complex the case is.
Helpful Resources:
IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill: https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
One Big Beautiful Bill Act (OBBBA): 10 Essential Tax Provisions Family Law Professionals Need to Know in 2025: https://www.familylawsoftware.com/one-big-beautiful-bill-act-obbba-10-essential-tax-provisions-family-law-professionals-need-to-know-in-2025/
Family Law Software Release Notes: https://www.familylawsoftware.com/notes/