What is the top individual tax rate for 2026?

The top rate depends on the legislative outcome. If the TCJA was extended, the top rate remains 37%. If the TCJA expired, the top rate reverts to 39.6% under the pre-2018 rate structure. Business owners should confirm the applicable rates with their tax advisor.

Does the Section 199A deduction still exist in 2026?

The Section 199A qualified business income deduction was a TCJA provision scheduled to expire after 2025. Whether it continues in 2026 depends on whether Congress extended it. If it expired, the full amount of pass-through business income is taxed at individual rates without the 20% deduction.

New Tax Laws for 2026: What Changed on January 1 | Lynch Law

New Tax Laws for 2026: What Changed on January 1

Lynch Law, PLLC

January 1, 2026, marks the beginning of a new chapter in the tax code. Whatever emerged from the legislative process—full TCJA extension, partial extension with modifications, or complete sunset—the 2026 tax year brings changes that every business owner needs to understand. This post provides a practical overview of what changed and what business owners should do differently.

Individual Income Tax Rates

The individual income tax rate structure for 2026 is the most fundamental change affecting business owners. If the TCJA rates were extended, the seven-bracket structure continues with the top rate at 37%. If the TCJA expired, the rate structure reverts to pre-2018 law with a top rate of 39.6%. The brackets are also affected—and the rate at which specific income levels are taxed may have changed even if the top rate remained the same. Business owners should update their income projections and tax models with the new rate structure immediately.^[1]

Pass-Through Business Income

The fate of the Section 199A qualified business income deduction is critical for pass-through business owners. If the deduction was extended, eligible business owners continue to deduct up to 20% of their qualified business income. If it expired, the full amount of pass-through business income is taxed at the individual rates—a significant increase in the effective tax rate for most pass-through business owners. This change alone may warrant a reconsideration of entity structure for businesses that had relied on the 199A deduction.^[2]

Estate and Gift Tax

The applicable exclusion amount for 2026 determines the estate planning landscape for the year. If the enhanced exemption was extended, estate planning continues at the elevated levels. If it reverted to approximately $7 million per person, a significantly larger number of estates are now subject to the federal estate tax. The annual gift tax exclusion continues to be adjusted for inflation separately from the lifetime exemption.^[3]

SALT Deduction

The $10,000 cap on state and local tax deductions was one of the most politically contentious TCJA provisions. If the cap was extended (with or without modification), the PTET election remains an important planning tool. If the cap expired and the full SALT deduction was restored, the PTET election becomes less critical—though it may still provide benefits in certain situations.^[4]

What to Do Now

Business owners should take immediate action to update withholding and estimated tax payments based on the new rates, review and update payroll tax calculations for employees, evaluate whether entity structure changes are warranted, schedule a planning session with their tax advisor to model the impact of the changes on their specific situation, and review any expiring elections or provisions that need to be renewed or modified for the new year.^[5]

References

^[1] IRC § 1 (individual income tax rates for 2026 based on legislative outcome; TCJA § 11001 sunset or extension).
^[2] IRC § 199A (qualified business income deduction; status for 2026 depends on legislative action or TCJA sunset).
^[3] IRC § 2010(c) (applicable exclusion amount for 2026); § 2503(b) (annual gift tax exclusion, adjusted for inflation).
^[4] IRC § 164(b)(6) (SALT deduction cap; status for 2026 depends on legislative action or TCJA sunset).
^[5] See Tax Controversy & IRS Defense (discussing tax planning updates for the 2026 tax year).

This article is for informational purposes only and does not constitute legal advice. The facts of every situation are different, and you should consult with a qualified attorney before taking action based on the information in this article.