What are the key U.S. tax changes for 2026?

In this blog, we highlight notable individual income tax changes that took effect at the end of 2025 and into early 2026 — and what they may mean for mobility programs. 

United States Tax Update for 2026: What Federal and State Changes Could Mean for Taxpayers

At the federal level, 2026 brings several tax updates for U.S. taxpayers. While the federal tax rates themselves remain unchanged, inflation indexing adjustments will affect tax brackets and the standard deduction, and the Social Security wage base is increasing. On top of that, provisions from the One Big Beautiful Bill (OBBB), passed in July 2025, are set to take effect on January 1, 2026, introducing a range of new rules that could affect deductions, charitable giving, and planning opportunities for families.

Taken together, the overall impact will vary by income level, but many taxpayers may see a modest reduction in tax liability. At the same time, higher earners may face increased Social Security tax exposure and new deduction limitations.

What changed with the SALT deduction in 2026?

One of the most notable changes involves the state and local tax deduction, commonly known as SALT. The Tax Cuts and Jobs Act of 2017 capped the itemized SALT deduction at $10,000. Under OBBB, that cap was increased to $40,000 for 2025 and rises to $40,400 for 2026, with a $20,200 limit for taxpayers filing separately. However, the benefit begins to phase down once income exceeds $505,000, or $252,500 for married taxpayers filing separately. Unless additional legislation is passed, the expanded cap is scheduled to revert to $10,000 in 2030.

Charitable deductions are also changing in 2026. Taxpayers who do not itemize will be able to claim a deduction for charitable contributions of up to $1,000 for single filers and $2,000 for joint filers. Meanwhile, those who do itemize will face a new threshold: only charitable contributions exceeding 0.5% of adjusted gross income will be deductible. In addition, a phaseout of itemized deductions is being introduced for individuals in the top 37% tax bracket, reducing deductions at a rate of 2/37 for each dollar over the threshold for that bracket.

Another provision likely to attract attention is the temporary deduction for automobile loan interest. For tax years 2025 through 2028, individuals may deduct up to $10,000 of interest paid on an auto loan for a qualifying new personal-use vehicle purchased after 2024, provided final assembly occurred in the United States. The deduction phases out when modified adjusted gross income exceeds $200,000 for joint filers and $100,000 for other taxpayers. This provision is currently scheduled to expire beginning in 2029.

OBBB also introduced a new savings concept for children known as “Trump Accounts.” These accounts are structured similarly to traditional IRAs and are available to eligible children under age 18 who are U.S. citizens with Social Security numbers. Parents and relatives may contribute up to $5,000 annually on a non-deductible basis, and earnings are taxed only when withdrawn. A related pilot program provides a tax-favored $1,000 government contribution for children born between January 1, 2025, and December 31, 2028.

Which states are lowering income taxes in 2026?

At the state level, tax changes continue to trend toward lower individual income tax rates in several jurisdictions.

  • Georgia reduced its flat tax rate from 5.19% to 5.09%, with further annual reductions of 0.1% scheduled through 2029.

  • Indiana lowered its flat income tax rate from 3% to 2.95%, with another reduction to 2.9% planned for 2027.

  • Kentucky reduced its flat rate from 4% to 3.5%, while Mississippi lowered its top rate from 4.4% to 4%, with additional scheduled decreases through 2030 and a longer-term goal of eliminating the tax if revenue targets are met.

Other states are moving in a similar direction.

  • Montana reduced its top rate from 5.9% to 5.65%, with another decrease to 5.4% scheduled for 2027.

  • Nebraska lowered its top rate from 5.2% to 4.55%, with a further drop to 3.99% planned for 2027.

  • North Carolina reduced its flat rate from 4.25% to 3.99% and has outlined a pathway for additional reductions between 2027 and 2034 if revenue benchmarks are achieved. Ohio cut its top marginal rate for 2026 from 3.125% to 2.75%, although personal exemptions are being eliminated for individuals earning more than $500,000.

  • Oklahoma also simplified its tax rate schedule and reduced its top rate from 4.75% to 4.5%.

Will more tax legislation happen in 2026?

Even with all of these changes already on the table, 2026 may bring another round of tax legislation. There is growing attention on the possibility of an additional budget reconciliation bill before the November 2026 elections. After the passage of the 2025 One Big Beautiful Bill, lawmakers may look to advance further tax changes while there is still an opportunity to do so before any potential shift in congressional control. For employers, mobility teams, and taxpayers alike, that means the 2026 tax landscape may continue to evolve.

For now, the key takeaway is that 2026 is shaping up to be a year of meaningful tax change at both the federal and state levels. While many of the updates may offer modest tax relief, especially through expanded deductions and lower state tax rates, the full impact will depend on income, filing status, and location. As always, careful review of both federal and state rules will be essential when evaluating tax costs and planning ahead.

How often are AIRINC's tax data points updated?

Tax rules can change throughout the year, which is why AIRINC publishes relevant tax updates every quarter to help clients stay current.

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What Are AIRINC Data Points?

AIRINC’s quarterly Data Points provide updates on global mobility trends across housing, goods and services, exchange rates, and tax. These insights are drawn from our ongoing global research and are designed to help mobility teams stay informed and make confident, data-driven decisions.

What Do These Tax Changes Mean for Expatriates?

Individual tax changes can directly influence:

 

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