US Tax Changes 2026: No Tax on Tips, Higher Deductions & Everything the IRS Just Changed
The IRS has released major 2026 tax changes under the One Big Beautiful Bill. Learn about no tax on tips, the $32,200 standard deduction, senior breaks & more.
The Internal Revenue Service has confirmed the most significant set of tax changes since the 2017 Tax Cuts and Jobs Act, with dozens of new rules, expanded deductions, and eliminated credits taking effect for the 2026 tax year.
Most of the changes stem from the One Big Beautiful Bill Act (OBBA), signed into law on July 4, 2025 — permanently extending existing tax rates while adding brand-new benefits for workers, seniors, homeowners, and families.
Here is a complete breakdown of every major change and what it means for your bottom line.
1. STANDARD DEDUCTION INCREASES — MORE MONEY STAYS IN YOUR POCKET
For tax year 2026, the IRS raised the standard deduction for all filing statuses:
- Married filing jointly: $32,200 (up from $31,500)
- Single filers: $16,100 (up from $15,750)
- Heads of household: $24,150
The doubled standard deduction — originally introduced by the 2017 TCJA and set to expire — is now permanent under OBBA. This means most Americans will automatically reduce their taxable income by more in 2026 than in any prior year, without needing a single receipt or itemized expense.
A single filer earning $75,000 will pay approximately $279 less in federal income tax in 2026 compared to 2025, according to USTax Tools.
2. NO TAX ON TIPS — UP TO $25,000 DEDUCTION
One of the most impactful provisions of the One Big Beautiful Bill is the elimination of federal income tax on qualified tip income.
Tipped workers — including restaurant servers, bartenders, hotel staff, hair stylists, delivery drivers, and other service workers in IRS-designated tipped occupations — may now deduct up to $25,000 in qualified tips from their federal taxable income for tax years 2025 through 2028.
Key details:
- Available to both itemizers and non-itemizers
- Phases out for taxpayers with MAGI above $150,000 ($300,000 for joint filers)
- Must be claimed using the new IRS Schedule 1-A
- Tips must be in an IRS-recognized tipped occupation (full list at IRS.gov)
The IRS updated its Tax Withholding Estimator at IRS.gov in March 2026 to reflect this change — tipped workers should update their W-4 immediately to stop over-withholding.
3. NO TAX ON OVERTIME — UP TO $12,500 DEDUCTION
Workers who earn overtime pay now benefit from a parallel deduction of up to $12,500 ($25,000 for married couples filing jointly) of qualified overtime compensation.
The deduction covers the "premium" portion of overtime — for example, the "half" in "time-and-a-half" pay under the Fair Labor Standards Act. It is effective for tax years 2025 through 2028 and is available regardless of whether you itemize.
Key details:
- Overtime must appear on your Form W-2 or 1099
- Phases out for MAGI above $150,000 ($300,000 for joint filers)
- Claimed on Schedule 1-A alongside the tips deduction
- Federal employees qualify
This deduction directly benefits manufacturing workers, nurses, truck drivers, police officers, and any employee regularly working overtime hours.
4. NEW $6,000 SENIOR DEDUCTION — AGES 65 AND OLDER
Americans aged 65 and older received one of the most generous individual tax breaks in years under OBBA. Seniors may now claim an additional federal income tax deduction of:
- $6,000 per person for individual filers
- $12,000 for married couples where both spouses are 65 or older
This deduction is on top of the existing additional standard deduction that seniors already receive (~$1,950 for single filers in 2026) — meaning qualifying seniors effectively claim both amounts.
The deduction is available for tax years 2025 through 2028 and applies whether you itemize or take the standard deduction.
Income phase-out:
- Begins at MAGI above $75,000 for single filers
- Begins at MAGI above $150,000 for joint filers
Check your eligibility using the IRS Interactive Tax Assistant at IRS.gov/ITA.
5. SALT CAP RAISED TO $40,400 — BIG WIN FOR HIGH-TAX STATES
The State and Local Tax (SALT) deduction cap — one of the most controversial aspects of the 2017 TCJA — has been raised from $10,000 to $40,400 for tax years 2025 through 2029.
This is a major relief for middle-income homeowners in states like California, New York, New Jersey, Connecticut, and Illinois, where property taxes and state income taxes routinely exceed the old $10,000 ceiling.
Key details:
- Effective for tax years 2025–2029 (reverts to $10,000 after 2029 unless Congress acts)
- Married filing separately: $20,200
- Phases out for AGI above $505,000 ($252,500 MFS)
If you live in a high-tax state and previously gave up itemizing because SALT alone exceeded the $10,000 cap, revisit your deduction strategy with a tax professional for 2026.
6. NEW CAR LOAN INTEREST DEDUCTION
Under OBBA, a new deduction for qualified passenger vehicle loan interest has been introduced. Individuals may now deduct up to $10,000 in interest paid on car loans for new vehicles purchased and used in the United States.
This deduction is available to both itemizers and non-itemizers and is claimed on the new Schedule 1-A alongside the tips, overtime, and senior deductions.
7. RETIREMENT CONTRIBUTION LIMITS RISE IN 2026
The IRS raised contribution limits across all major tax-advantaged retirement accounts for 2026:
Account | 2026 Limit
-------------------|------------
401(k) / 403(b) / 457 | $24,500
Catch-up (age 50+) | $8,000 extra → total $32,500
IRA (Traditional/Roth)| $7,500
IRA catch-up (50+) | $1,100 extra
SIMPLE IRA | $17,000
SEP IRA | $72,000 or 25% of compensation
HSA (individual) | $4,400
HSA (family) | $8,750
Special rule for high earners age 50+: Individuals who earned more than $150,000 in 2025 must now make all catch-up contributions on a Roth (after-tax) basis — pre-tax catch-up contributions are no longer permitted for this group.
8. CHILD TAX CREDIT PERMANENTLY RAISED TO $2,200
The child tax credit has been permanently increased to $2,200 per qualifying child, up from $2,000 under the TCJA. Going forward, the credit will be indexed for inflation — meaning it will automatically increase each year to keep pace with rising costs.
Additionally, the maximum Earned Income Tax Credit (EITC) for families with three or more qualifying children increases to $8,231 for 2026, up from $8,046 in 2025.
Dependent Care FSA: The contribution limit for dependent care flexible spending accounts has also been raised from $5,000 to $7,500 ($3,750 for married couples filing separately) — a significant benefit for working parents paying for childcare.
9. ESTATE TAX EXEMPTION HITS $15 MILLION — PERMANENT
The federal estate tax basic exclusion amount has been set at $15,000,000 per individual for 2026 — made permanent under OBBA and indexed for inflation going forward.
For married couples using portability, the combined exemption is $30,000,000.
Without OBBA, the exemption would have reverted to approximately $7 million per person on January 1, 2026 — a nearly $8 million cliff that would have threatened family business succession plans and generational wealth transfers nationwide. OBBA eliminated that cliff permanently.
The annual gift tax exclusion rises to $19,000 per recipient in 2026 ($38,000 per recipient for married couples splitting gifts).
10. TAX BRACKETS — ALL SEVEN RATES ARE NOW PERMANENT
The seven federal income tax brackets — 10%, 12%, 22%, 24%, 32%, 35%, and 37% — are now permanent under OBBA. They had been set to expire after 2025, with the top rate scheduled to jump back to 39.6%.
For 2026, bracket thresholds rise approximately 2.8% for inflation:
- 22% bracket starts at $49,725 for single filers (up from $48,475)
- 37% bracket kicks in at $626,350 for single filers ($751,600 for joint filers)
This is the clearest possible signal for long-term financial planning: the current rate structure is not going away.
11. WHAT WAS ELIMINATED: EV TAX CREDITS ARE GONE
Not all the news is positive. Three major clean energy tax credits have been eliminated under OBBA:
- New Clean Vehicle Credit (§30D): Ended for vehicles acquired after September 30, 2025
- Used Clean Vehicle Credit (§25E): Also ended after September 30, 2025
- Energy Efficient Home Improvement Credit (§25C): Ended for property placed in service after December 31, 2025
If you were counting on a federal EV tax credit to reduce the cost of a new electric vehicle, those benefits are no longer available at the federal level. Check with your state — California, New York, Colorado, and several others offer state-level EV incentives that remain active.
12. NEW: 1% EXCISE TAX ON CERTAIN INTERNATIONAL MONEY TRANSFERS
Starting in 2026, a new 1% excise tax applies to certain remittance transfers from the U.S. to another country — but only when the sender pays using cash, money order, cashier's check, or traveler's check.
The tax does not apply if you pay for an international wire transfer by credit card, debit card, or a bank account withdrawal. For the millions of Americans who regularly send money abroad to family, switching to a bank-linked transfer method eliminates this tax entirely.
WHAT IT MEANS FOR YOUR MONEY — ACTION STEPS FOR 2026
Here are the most important steps to take right now based on the 2026 tax changes:
✅ Tipped or overtime workers: Update your W-4 using the IRS Tax Withholding Estimator at IRS.gov — stop having too much withheld from every paycheck.
✅ Seniors 65+: Confirm eligibility for the $6,000 additional deduction at IRS.gov/ITA. If your income is under $75,000, you qualify for the full amount.
✅ Homeowners in CA, NY, NJ, CT, IL: Run the numbers on itemizing again. With the SALT cap at $40,400, deducting your property and state income taxes may now be worth more than the standard deduction.
✅ Retirement savers: Max out your 401(k) to $24,500 before December 31. If you are 50+, add the $8,000 catch-up contribution for a total of $32,500.
✅ Parents: Increase your Dependent Care FSA contributions to the new $7,500 limit during your next open enrollment.
✅ EV buyers: Federal credits are gone. Research your state's EV incentive programs before purchasing.
✅ International senders: Switch to bank-linked transfers (not cash or money orders) to avoid the new 1% excise tax.
Sources: Internal Revenue Service (IRS.gov), TurboTax One Big Beautiful Bill Tax Guide, U.S. Bank 2026 Tax Brackets, USTax Tools 2026 Tax Changes, Country Tax Calculator OBBA Analysis. Last verified July 8, 2026.