IRS Unveils Major Tax Filing and Refund Payment Changes

This week, the Internal Revenue Service (IRS) announced significant updates that will impact tax filing and refund processing starting from the 2026 tax year. These changes include adjustments to tax brackets, increases in deductions and tax credits, and a shift towards digital payments, all designed to address inflation and modernize the tax system. While these new amounts were revealed in 2025, they will take effect for filings submitted in 2027, covering the 2026 fiscal year. Here, we break down the major changes set to affect millions of taxpayers across the United States.

Transition to Digital Refunds: A Farewell to Paper Checks

In a landmark operational update announced by the IRS in October 2025, the gradual phasing out of paper checks for individual refunds is set in motion. This transition, part of a modernization initiative under Executive Order 14247, marks a significant move towards electronic payments.

What does this mean for taxpayers?

• The filing process remains unchanged.
• Refunds will primarily be issued via direct deposit or other secure electronic methods.
• For those without a bank account, options like prepaid debit cards and digital wallets will be available, with limited exceptions.

Taxpayers are encouraged to plan ahead; those without accounts should consider opening a free or low-cost one. The IRS recommends visiting resources like FDIC.gov or MyCreditUnion.gov. This change will be implemented gradually starting September 30, 2025, marking the beginning of the broader move to electronic payments, as law permits.

Enhanced Earned Income Tax Credit (EITC) for Families with Children

The Earned Income Tax Credit (EITC), a crucial benefit for low to moderate-income earners, will see an increase in 2026:

• Up to $8,231 for those with three or more qualifying children (up from $8,046 in 2025).
• Up to $7,316 for those with two children.
• Up to $4,427 for those with one child.
• Up to $664 for those without children.

This credit can lead to a substantial refund if the tax liability is low or zero. However, eligibility requires earned income (unemployment benefits or pensions do not count), valid Social Security numbers for all filers and dependents, and it does not apply to those using an ITIN instead of an SSN.

Child Tax Credit Increase: Now $2,200

The Child Tax Credit is also revised. Following a law enacted by President Donald Trump in July, the credit in 2026 will feature:

• Total credit: $2,200 per qualifying child.
• Refundable portion: at least $1,700.
• Restrictions: excludes children of parents lacking legal status.

The law maintains a refundable portion of the credit but dismissed a reform that would have expanded access to low-income families.

Special Deduction for Seniors Over 65

A notable measure is the introduction of a temporary $6,000 deduction for taxpayers over 65, available from 2025 to 2028:

• Fully available to individuals earning $75,000 or less annually ($150,000 for joint filers).
• Phase-out begins for incomes above $75,000.
• Not available for those who retired before age 65 due to disability.

This allows seniors to combine three types of deductions: the standard, the additional for age, and this new temporary deduction.

Adjustments in Tax Brackets: Inflation Considerations

The U.S. federal tax system is progressive, with income divided into portions taxed at different rates. For the 2026 tax year, the tax brackets will be adjusted to reflect inflation and ease the tax burden:

Individual Filers:

• 10%: for the first $12,400 earned.
• 12%: between $12,401 and $50,400.
• 22%: between $50,401 and $105,700.
• 24%: between $105,701 and $201,775.
• 32%: between $201,776 and $256,225.
• 35%: between $256,226 and $640,600.
• 37%: for incomes over $640,600.

Joint Filers:

• 10%: for the first $24,800 earned.
• 12%: between $24,801 and $100,800.
• 22%: between $100,801 and $211,400.
• 24%: between $211,401 and $403,550.
• 32%: between $403,551 and $512,450.
• 35%: between $512,451 and $768,700.
• 37%: for incomes over $768,700.

Standard Deduction Increases

The standard deduction, a fixed amount that reduces taxable income, will see a slight increase in 2026:

• Joint filers: $32,200 (up from $31,500 in 2025).
• Heads of household: $24,150 (up from $23,625).
• Individual filers: $16,100 (up from $15,750).

These deductions are designed to simplify filing and reduce the financial burden on households.

The changes announced by the IRS for the 2026 tax year represent a significant overhaul of the U.S. tax system. While some adjustments aim to protect taxpayers' purchasing power against inflation—such as new tax brackets and deductions—others focus on modernizing the tax process, like the gradual elimination of paper checks. Key credits like the EITC or the CTC remain vital for the working class and families with children, although their access remains tied to strict requirements. Collectively, these measures aim for a more efficient, secure, and economically aligned system. However, it's crucial for taxpayers to stay informed, review their financial situation, and prepare for these changes before filing taxes in 2027.