For months, the HR and payroll industry looked at December 31, 2025, with a sense of dread. It was, after all, the ‘sunset’ date for the TCJA which would bring a massive tax hike for millions of employees. However, the signing of the One Big Beautiful Act (OBBBA) in July 2025 changes everything. By making core provisions permanent and introducing a ‘supercharged’ employee-childcare credit, the OBBBA has transformed the tax brackets of 2026.
As we move past the 2025 tax brackets, the focus for HR has shifted from ‘what if’ to ‘how much.’ With payroll systems now live with the new tax brackets for 2026, here is what every HR professional needs to know to advice their workforce.
The new standard! 2026 tax brackets vs 2025
The OBBBA has adjusted old rates for the high-inflation world we’re living in. While the 2025 tax brackets were a glimpse of the ‘temporary’ TCJA era, the 2026 tax brackets represent a permanent, inflation-proofed future.
The IRS (via Rev. Proc. 2025-32) has confirmed the standard deduction is increasing to $16,100 for singles and $32,200 for joint filers. This means more ‘tax-free’ income for your employees before they even hit their first tier of the 2026 tax brackets.
| 2026 Tax Rate | Single Income Range | Joint Income Range |
| 10% | $0 – $12,400 | $0 – $24,800 |
| 12% | $12,401 – $50,400 | $24,801 – $100,800 |
| 22% | $50,401 – $105,700 | $100,801 – $211,400 |
| 24% | $105,701 – $201,775 | $211,401 – $403,550 |
For an employee earning $105,000, this shift into the new tax brackets for 2026 actually protects more of their income from the 24% jump of 2025 tax brackets. This may result in immediate “payday wins” through lower federal withholding.
A $600,000 childcare advantage from OBBBA
While the new tax brackets help the paycheck, the OBBBA’s updates to Section 45F are what will eventually help with talent retention. The act effectively tripled the Employer-Provided Childcare Credit.
Small businesses can now claim a credit of up to $600,000 for childcare expenses. In a market where childcare costs often rival heavy mortgage payments, the new tax brackets for 2026 may help with talent retention.
HR leaders need to take the first step now
Many employees still believe their taxes went up this year because they haven’t touched their W-4 since 2024. Here’s how you can boost morale by explaining the 2026 tax brackets.
Wider inflation protection: Explain that the new tax brackets are wider. A 3% cost-of-living raise in 2026 is less likely to push them into a higher bracket than it was under the 2025 tax brackets.
Better credits: Show the $17,670 Adoption Credit and the enhanced EITC. These are “found money” for families that the OBBBA made possible.
The “Net Pay”: If your payroll audit shows a decrease in federal withholding due to the tax brackets 2026, tell your employees. It’s a “raise” that didn’t cost the company a dime.
The transition from the 2025 tax brackets to the permanent 2026 tax brackets is the most significant payroll event of the decade. The OBBBA has provided the framework. Now it’s time to ensure your payroll configuration and employee communications reflect the reality of these new tax brackets.
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