Tax season is approaching, and significant changes to federal income tax rules are set to take effect for the 2026 filing season, covering income earned in 2025. These updates, largely stemming from the recently passed “One Big Beautiful Bill” (H.R. 1), include permanent extensions of some provisions from the 2017 Tax Cuts and Jobs Act, as well as new deductions and adjustments. Understanding these changes is crucial for maximizing your refund or minimizing your tax liability.
Key Changes to Tax Brackets and Standard Deduction
The most notable update is the permanence of the existing tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Without legislative action, these would have reverted to pre-2017 levels. The income thresholds for each bracket have been adjusted for inflation. For example, a single filer’s 10% bracket now extends to $11,925 for 2025, up from $11,600 in 2024.
Similarly, the standard deduction has been permanently increased, providing a larger base for reducing taxable income. For the 2026 filing season, single filers and married couples filing separately will have a standard deduction of $16,100, while married couples filing jointly will receive $32,200, and heads of household $24,150. These figures are also indexed to inflation.
New Deductions: Seniors, State and Local Taxes, and Vehicle Loans
Several new or expanded deductions offer additional tax relief. Filers aged 65 and older can now claim an extra $6,000 deduction, regardless of whether they itemize. This benefit phases out at higher incomes: single filers earning over $75,000 (or couples earning over $150,000) will see the deduction reduced by $0.06 for each dollar earned above those thresholds.
The state and local tax (SALT) deduction has been temporarily increased to $40,000 per household, rising 1% annually through 2029 before reverting to $10,000. This primarily benefits taxpayers in high-tax states, but the deduction phases out for high-income earners. The limit decreases by $0.30 for every dollar earned above $500,000 (single filers) or $600,000 (joint filers).
A new deduction allows taxpayers to claim interest paid on loans used to purchase qualifying new vehicles assembled in the US. The maximum deductible amount is $10,000, but the deduction phases out for single filers earning over $100,000 (or couples earning over $200,000).
Changes to Income from Tips, Overtime, and Child Tax Credit
The OBBB provides tax breaks for tips and overtime income. Workers can deduct up to $25,000 in qualified tips, and the same amount for overtime pay, before taxes are applied. However, these deductions phase out for higher earners ($150,000 for single filers, $300,000 for joint filers).
The child tax credit has increased slightly to $2,200 per child, but the refundable amount remains at $1,700. The credit now requires both parents and qualifying children to have Social Security numbers, excluding an estimated 2.66 million children from eligibility.
Reporting Thresholds for Online Payments
The IRS has adjusted the reporting thresholds for income from online payment platforms such as Venmo and PayPal. Taxpayers will now only receive a 1099-K form if they receive over $20,000 in payments and conduct more than 200 transactions on a single platform. The previous threshold was $5,000.
Ongoing Updates and Professional Advice
Tax laws can change, and the IRS is still finalizing guidance for the 2026 tax season. Stay updated on potential adjustments to forms and interpretations of new rules. This article provides general information only and should not be considered financial or tax advice. Consult with a tax professional for personalized guidance tailored to your specific situation.
These changes underscore the importance of staying informed about evolving tax regulations to ensure accurate filing and maximize potential savings.
