Tax bracket indexation for 2026 — Brackets and credits were indexed by 2.0% federally, 2.2% in BC

How it works

Tax brackets and many credits are stated as dollar amounts. If those amounts never moved, inflation alone would push people into higher brackets and quietly erode the value of every credit — an effect called bracket creep.

Indexation prevents that. Each year the thresholds and personal amounts are adjusted by an indexing factor, so the same real income faces roughly the same tax.

The federal indexing factor for 1 January 2026 is 2.0%. Provincial factors are set separately and differ: British Columbia is 2.2% and Ontario is 1.9%.

The adjustment happens automatically in payroll withholding. An employee does not need to file a new TD1 for it to take effect.

Indexation is neither a tax cut nor a tax rise. It aims to leave you where you were: if income rose by exactly the indexing factor, real tax is broadly unchanged. It prevents a silent increase nobody voted for.

Federal and provincial indexation are set independently, which is why the factors differ. Each government adjusts its own brackets and its own credits, so the combined rate on a given income moves by an amount that is neither the federal figure nor the provincial one.

How it applies to you

Everyone who pays personal tax, though most people never notice it — the thresholds simply move and take-home pay adjusts.

It matters most in two situations: where income sits close to a bracket boundary, and where a credit is being claimed near a phase-out threshold. In both, a small movement in the threshold changes the outcome.

For anyone doing their own planning, the important detail is that federal and provincial factors differ. A single combined assumption applied to both will drift apart from reality over a year.

How to calculate it

The 2026 factors:

What changed

Indexation moves the bracket thresholds and the personal amounts. It is applied automatically in payroll withholding, whether or not an employee files a new TD1.

What to do

If you maintain a planning spreadsheet or calculate your own instalments, refresh the thresholds. Carrying last year’s numbers forward is the most common source of a wrong estimate.

You do not need to do anything for payroll — indexation is applied automatically in the withholding tables.

Where income sits near a bracket boundary, the movement is worth checking rather than assuming. It can change what a bonus or a dividend costs.

The terms used on this page

Indexation

The annual adjustment of tax thresholds and credits in line with inflation.

Bracket creep

Being pushed into a higher bracket by inflation alone, without any real increase in income.

TD1

The form declaring your credits to an employer. Indexation applies without filing a new one.

Phase-out threshold

The income level at which a credit begins to reduce.

Common questions about tax bracket indexation for 2026

Where this comes from

Every figure on this page is taken from the source below, not from interpretation:

• CRA — income tax rates and income thresholds for payroll

General information, not tax advice. This page explains a change in general terms. It cannot account for your circumstances and does not create a professional relationship. Confirm anything that affects a decision — send an enquiry.