New Tax Rules 2026, 7 Changes Hitting Your Wallet Now
The One Big Beautiful Bill Act brought sweeping new tax rules that took effect January 1, 2026—but here’s what most sites won’t tell you: several provisions apply retroactively to your entire 2025 tax year, meaning you’ll see the benefits when you file in the coming weeks.
From a new $6,000 seniors deduction to no-tax-on-overtime rules, these changes could put hundreds or even thousands of dollars back in your pocket. The IRS released updated guidance in January 2026 confirming these provisions are now in effect, making this the largest tax code overhaul since 2017.
What Changed in 2026
The One Big Beautiful Bill Rewrote Tax Code
Congress passed the One Big Beautiful Bill Act (OBBB) in July 2025, extending expiring Tax Cuts and Jobs Act provisions while adding new deductions and credits. Most provisions took effect January 1, 2026, but several apply retroactively to January 1, 2025—creating unusual benefits for your 2025 return filed this year.
The IRS published updated Revenue Procedure 2025-32 in January 2026 announcing inflation adjustments and confirming which provisions apply to which tax years.
Who Benefits Most From New Tax Rules
Middle-income earners, seniors age 65+, families with children, workers who received tips or overtime in 2025, homeowners in high-tax states, and anyone who purchased a new American-made vehicle in 2025 will see the biggest impact.
Bottom line: if you earn between $30,000 and $150,000, you’re likely eligible for multiple new deductions and credits.
What You Came To Know: 7 New Tax Rules for 2026
Standard Deduction Increases
For tax year 2026, the standard deduction increases to $32,200 for married couples filing jointly and $16,100 for single taxpayers.
More importantly for immediate savings, the 2025 standard deduction (the return you file in early 2026) increased to $31,500 for married couples and $15,750 for single filers under the OBBB’s retroactive provisions.
This means your taxable income decreases even if you don’t itemize deductions, lowering your tax bill automatically.
New $6,000 Seniors Deduction
If you’re 65 or older at the end of 2025, you qualify for a new federal income tax deduction of up to $6,000 if you file individually, or up to $12,000 if your spouse is also 65 or older and you file jointly.
The deduction phases out for single filers with modified adjusted gross income over $75,000 and joint filers over $150,000. You don’t need to itemize to claim it—it works like the standard deduction.
This is available for tax years 2025 through 2028 only, creating a four-year window to maximize benefits.
No Tax On Tips And Overtime
The 2025 tax law changes temporarily provide for no tax on tip or overtime income for certain workers.
If you received tip income or overtime pay as an hourly worker during 2025, these amounts may be excluded from federal income tax when you file your return. Specific eligibility requirements and income limits apply—check IRS guidance or consult a tax professional to verify your qualification.
Higher SALT Deduction Cap
The state and local tax (SALT) deduction cap—which previously limited itemized deductions for state income taxes and property taxes to $10,000—increased to $40,000 for 2025 and adjusts annually thereafter through 2029.
Homeowners in high-tax states like California, New York, New Jersey, and Illinois benefit most. If you paid $25,000 in property taxes and $10,000 in state income taxes in 2025, you can now deduct $35,000 instead of being capped at $10,000.
Car Loan Interest Deduction
There’s a new deduction for interest payments on certain vehicles—up to $10,000 deduction with phaseout for modified adjusted gross income over $100,000 (over $200,000 for married filing jointly).
The vehicle must be a new, U.S.-manufactured passenger automobile purchased in 2025 or later. You can claim the car loan interest deduction whether or not you itemize, but the deduction is available only for the 2025 through 2028 tax years.
Your lender must provide Form 1098-A showing interest paid by January 31, 2026.
Increased Child Tax Credit
The maximum child tax credit increased from $2,000 to $2,200 per qualifying child under age 17 for 2025.
The refundable portion—Additional Child Tax Credit—can be up to $1,700 per child if the credit exceeds your tax liability. Phase-out thresholds begin at $200,000 for single filers and $400,000 for married couples.
For more details on qualifying and income limits, see Who Qualifies For The $3,600 Child Tax Credit.
Charitable Deduction For Non-Itemizers
Starting in 2026, the OBBB allows non-itemizers to deduct up to $1,000 in charitable contributions—or $2,000 for joint filers.
This resurrects a provision that briefly existed during the pandemic but lapsed. You can now claim both the higher standard deduction and a charitable deduction without itemizing, though gifts to donor-advised funds don’t qualify.
What People Get Wrong About New Tax Rules
“I Don’t Need To Do Anything To Get These Benefits”
While standard deduction increases apply automatically, other provisions require documentation and specific forms. The no-tax-on-tips and overtime provisions, car loan interest deduction, and seniors deduction all require you to complete additional tax forms and prove eligibility.
Don’t assume your tax software will catch everything—review which deductions you qualify for and gather supporting documents before filing.
“These Tax Rules Are Permanent”
Here’s the truth: many OBBB provisions are temporary. The seniors deduction, car loan interest deduction, no-tax-on-tips, and no-tax-on-overtime all expire after 2028. The higher SALT cap runs through 2029.
Congress could extend these provisions, but as written, they have sunset dates. Plan accordingly rather than assuming these benefits continue indefinitely.
What You Must Know Before Filing
Verify Your W-2 Reflects New Rules
For tax year 2025, the standard deduction increases to $31,500 for married couples filing jointly and $15,750 for single filers under retroactive provisions—but employers continued using old withholding tables all year.
This mismatch means you likely overpaid federal taxes throughout 2025 and will receive a larger refund when you file. Double-check your W-2 shows all wages, tips, and overtime correctly before filing.
Understand Modified Adjusted Gross Income Limits
Many new deductions phase out based on modified adjusted gross income (MAGI), not gross income. For most taxpayers, MAGI equals your adjusted gross income from Form 1040 line 11.
Calculate your MAGI before assuming you qualify for seniors deductions, car loan interest deductions, or full child tax credits. Crossing phase-out thresholds can reduce or eliminate benefits.
Itemize Only If It Exceeds Standard Deduction
With standard deductions now at $31,500 (married) and $15,750 (single) for 2025, fewer taxpayers benefit from itemizing. The OBBB imposes a limitation on the tax benefit from itemized deductions for those taxpayers in the highest tax bracket (37%).
Additionally, a new “floor” for charitable deductions means only gifts above 0.5% of your income will be deductible. Run the calculations before choosing to itemize.
What To Do Next
File Early With Accurate Documentation
The IRS began accepting 2025 tax returns on January 27, 2026. Filing early protects against identity theft and gets your refund faster, but don’t sacrifice accuracy for speed.
Gather all documents first: W-2s (due January 31), 1099 forms for investment income and gig work, Form 1098-A for car loan interest, receipts for charitable donations if you’re claiming the new non-itemizer deduction, and proof of age if you’re claiming the seniors deduction.
Adjust 2026 Withholding Now
If you expect a large refund from retroactive 2025 provisions, update your Form W-4 with your employer immediately to increase take-home pay for the rest of 2026. The IRS Tax Withholding Estimator at IRS.gov helps calculate optimal withholding.
Overpaying throughout the year gives the government an interest-free loan of your money. If you’re consistently getting refunds exceeding $2,000, you’re withholding too much.
For questions about paycheck withholding or illegal deductions, see Paycheck Wipeouts, and How To File A Wage And Hour Complaint.
Consider Tax-Advantaged Accounts
Starting January 1, 2026, bronze and catastrophic health insurance plans are treated as HSA-compatible, expanding access to Health Savings Accounts.
Additionally, the maximum FSA contribution for 2026 is $3,400, with rollover limits increasing to $680.
Review whether increasing retirement contributions, maximizing HSA deposits, or using FSAs reduces your taxable income while building long-term savings.
Frequently Asked Questions
What are the biggest new tax rules for 2026?
The standard deduction increased to $32,200 (married) and $16,100 (single), a new $6,000 seniors deduction was created, SALT deduction cap rose to $40,000, child tax credit increased to $2,200, and several provisions like no-tax-on-tips and car loan interest deductions took effect. Many apply retroactively to 2025 returns filed in 2026.
Do I automatically get the higher standard deduction?
Yes, the increased standard deduction applies automatically when you file your 2025 or 2026 tax return. You don’t need to take any special action—tax software and the IRS use the current year’s standard deduction amounts when processing your return.
How do I claim the new $6,000 seniors deduction?
If you were 65 or older on December 31, 2025, you claim the seniors deduction on your Form 1040 for tax year 2025. The deduction appears as an additional amount beyond the standard deduction and phases out for single filers with MAGI over $75,000 or joint filers over $150,000.
Are tips and overtime really tax-free now?
For eligible workers, certain tip and overtime income may be excluded from federal income tax for 2025 and later years. Specific income limits, job classifications, and documentation requirements apply. Consult IRS guidance or a tax professional to verify whether your tips or overtime qualify for exclusion.
Will these tax changes continue after 2026?
Many provisions are temporary. The seniors deduction, car loan interest deduction, no-tax-on-tips, and no-tax-on-overtime all sunset after 2028. The higher SALT cap expires after 2029. Congress could extend these provisions, but as written, they have expiration dates.
How does the higher SALT deduction cap help me?
If you itemize deductions and live in a state with high income or property taxes, you can now deduct up to $40,000 in state and local taxes on your 2025 return instead of the previous $10,000 cap. This significantly reduces taxable income for homeowners in states like California, New York, and New Jersey.
Can I deduct charitable donations without itemizing?
Yes, for 2026 forward, non-itemizers can deduct up to $1,000 in cash charitable contributions ($2,000 for married couples filing jointly). This is separate from and in addition to the standard deduction, though donations to donor-advised funds don’t qualify.
💡 Pro Tip If you’re 64 in early 2026 but turn 65 later this year, consider deferring some income until after your birthday if possible. The $6,000 seniors deduction for 2026 returns (filed in 2027) only requires you to be 65 on December 31, 2026—not for the entire year. Strategic timing could qualify you for the deduction while your income is still being earned.
Disclaimer: This article provides general information about new tax rules, tax changes for 2026, and how recent legislation affects federal income taxes. Tax laws vary by individual circumstances, income level, filing status, and state residence. AllAboutLawyer.com does not provide tax preparation services, tax planning advice, or IRS representation. For personalized guidance on how new tax rules affect your specific tax situation, which deductions you qualify for, or how to optimize your filing strategy, consult a qualified CPA, enrolled agent, or tax attorney, or contact the IRS directly at IRS.gov.
Ready to maximize your tax benefits? Visit the official IRS One Big Beautiful Bill provisions page for detailed guidance or explore more tax and financial guides at AllAboutLawyer.com.
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Last Updated: January 28, 2026 — We keep this current with the latest legal developments
This article provides general information and is not tax advice for your individual situation.
About the Author
Sarah Klein, JD, is a licensed attorney and legal content strategist with over 12 years of experience across civil, criminal, family, and regulatory law. At All About Lawyer, she covers a wide range of legal topics — from high-profile lawsuits and courtroom stories to state traffic laws and everyday legal questions — all with a focus on accuracy, clarity, and public understanding.
Her writing blends real legal insight with plain-English explanations, helping readers stay informed and legally aware.
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