The IRS has released its 2026 adjustments to tax brackets, deductions and exemptions.
Whenever the upcoming year’s rates are announced, I’m always reminded of how many ways the government has at its disposal to adjust our taxes.
So, as we look ahead to 2026, here are the five most common ways our government can generate more tax revenue. These changes could impact your client’s tax bill – today and in retirement.
- Changes to tax brackets: This is the way most of your clients think about taxes changing. For example, a couple making $250,000 a year will currently pay at a top rate of 24%. Congress could pass legislation that raises the top rate to 25%. Higher bracket rate = more taxes paid.
- Changes to the amount of income applied to a given bracket: It’s not just the bracket rate itself that can increase taxes for your clients. If the government adjusts the amount of income applied to a bracket – say, by lowering the income amount eligible for each bracket – your clients pay higher tax rates on more of their income. The result? A bigger tax bill.
- Changes to deductions: Most of us don’t pay taxes on all our income. We either itemize or take a standard deduction. Congress, of course, can change how much we can deduct from our taxable income. Fewer deductions means more taxable income – and more taxes paid.
- Creating new taxes and fees: Congress can also get creative and come up with new taxes and fees. For example, as part of the Medicare Modernization Act in the early 2000s, Congress created IRMAA, an additional surcharge higher-income earners pay for their Medicare benefits (on top of their premiums). This is an area I suspect the government will turn to more often in the decades ahead, creating new sources of revenue by creating new taxes.
- Changes to the structure of taxation: Finally, Congress can change what is taxed, when it’s taxed, and who it is taxed for. Think back to the 2019 SECURE Act. This legislation changed how most non-spousal inherited IRAs are taxed. Previously, heirs could “stretch” out an inherited IRA by taking no or very little money out of the account, limiting their taxes in a given year. Now, most heirs must drain the inherited IRA within 10 years – and of course, pay taxes on those funds. This can often push savers into a higher tax bracket, meaning the funds are taxed at an even higher rate.
Of course, there are other ways the government can generate revenue, from sales taxes to tariffs. But when it comes to income-based taxes, the government has plenty of tools at its disposal to send more of your client’s income to the IRS… and leave less of it in their bank account.
All of this legislative uncertainty is a driving reason U.S. savers are looking to diversify the tax status of their retirement assets. Advisors who can help their clients incorporate tax-free approaches will be best positioned to protect their clients against future changes from Washington.
(Here at Stonewood Financial, we’re a little obsessed with helping advisors like you analyze and reduce taxes for their clients. See the software we’ve developed to help you here.)
There’s no better time to help your clients diversify the tax status of their retirement assets. After all, the One Big Beautiful Bill Act (OBBBA) is keeping taxes relatively low for the next few years. So, make sure you’re leveraging today’s lower-rate environment to help your clients plan for what’s ahead.
Because if there’s one thing we know, it’s that Congress has plenty of ways to raise the amount of taxes your client could pay in retirement. As former President Calvin Coolidge pointed out, “Nothing is easier than spending the public money. It does not appear to belong to anybody.”
About the Author
Becky helps your clients outsmart Washington and take control of their retirement. Making the complex simple and meaningful? It’s all in a day's work.
