The 2025 tax law, the One Big Beautiful Bill Act (Public Law 119-21), shapes your 2026 federal return in three main ways. It keeps today’s lower tax brackets and larger standard deduction permanently. It adds four temporary deductions, for tips, overtime, new-car loan interest and people 65 and older, that you can claim whether or not you itemize. And starting in 2026, it changes the rules for itemizers and charitable donors, including a $1,000 charitable deduction ($2,000 for joint filers) for people who take the standard deduction.
Key takeaways
- The 2026 standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers and $24,150 for heads of household (IRS, as of October 2026).
- The tips, overtime, car loan interest and senior deductions run from 2025 through 2028. Each one phases out at higher incomes. Married couples must file jointly to claim the tips, overtime and senior deductions; the car loan interest deduction has no joint-filing requirement.
- The state and local tax (SALT) cap is $40,400 for 2026, but it shrinks once modified AGI passes $505,000.
- In the example, a family with $6,000 of overtime premium pay, $1,800 of new-car loan interest and $1,500 of cash gifts to charity pays $1,116 less in 2026 federal tax because of the new deductions.
- The 2026 forms were still drafts as of October 2026. Check the final instructions before you file.
The main changes at a glance
The law was signed on July 4, 2025. Some of its provisions started with 2025 returns, and others start in 2026. The table covers the ones most likely to affect a household’s 2026 return. “MAGI” means modified adjusted gross income. For most people it is the same as the adjusted gross income (AGI) on Form 1040.
| Provision | Who qualifies | 2026 limit | Phase-out | Years |
|---|---|---|---|---|
| Standard deduction | Everyone who doesn’t itemize | $32,200 joint; $16,100 single; $24,150 head of household | None | Permanent, indexed for inflation |
| Senior deduction | Age 65 or older by Dec. 31; valid SSN; joint return if married | $6,000 per qualifying person | Reduced by 6% of MAGI over $75,000 single / $150,000 joint | 2025–2028 |
| Qualified tips | Workers in occupations on the IRS list of customarily tipped jobs; valid SSN; joint return if married | $25,000 | $100 less per $1,000 of MAGI over $150,000 single / $300,000 joint | 2025–2028 |
| Qualified overtime | Workers paid the overtime premium the Fair Labor Standards Act requires; valid SSN; joint return if married | $12,500 single; $25,000 joint (premium part only) | $100 less per $1,000 of MAGI over $150,000 single / $300,000 joint | 2025–2028 |
| Car loan interest | New, personal-use vehicle with final assembly in the U.S.; loan taken out after Dec. 31, 2024 | $10,000 | $200 less per $1,000 of MAGI over $100,000 single / $200,000 joint | 2025–2028 |
| SALT deduction cap | Itemizers | $40,400 ($20,200 married filing separately) | Reduced by 30% of MAGI over $505,000, but not below $10,000 | Rises 1% a year through 2029; $10,000 from 2030 |
| Charitable deduction for non-itemizers | Standard-deduction filers who give cash to qualifying charities | $1,000 single; $2,000 joint | None | Starts 2026; permanent |
| Child Tax Credit | Child under 17 with an SSN; SSN for at least one parent | $2,200 per child; up to $1,700 refundable | Starts at $200,000 single / $400,000 joint | Permanent, indexed after 2025 |
What stays the same for most households
The biggest change is easy to miss because it keeps things the same. The 2017 tax cuts were set to expire after 2025. The new law made the seven-bracket structure (10% to 37%) and the larger standard deduction permanent. It also set the personal exemption at $0 permanently. For 2026, the 22% bracket for joint filers covers taxable income from $100,800 to $211,400. For single filers it covers $50,400 to $105,700 (Rev. Proc. 2025-32, as of October 2026).
Homeowners keep the mortgage interest deduction limit of $750,000 of acquisition debt, which is now permanent. Starting in 2026, mortgage insurance premiums can again count as deductible mortgage interest if you itemize. The draft 2026 Schedule A has a line for them, and the deduction phases out at higher incomes. Most households still take the standard deduction, so neither change helps unless your itemized total is larger.
The four new deductions
These deductions go on Schedule 1-A. They come off after AGI is calculated, so they cut your taxable income but don’t lower your AGI. You can claim them whether you itemize or take the standard deduction. All four apply to tax years 2025 through 2028 unless Congress extends them.
Tips
You can deduct up to $25,000 a year of qualified tips. These are voluntary cash or card tips, including shared tips, earned in an occupation on the IRS list of jobs that customarily received tips on or before Dec. 31, 2024. The tips have to be reported on a W-2, a 1099 or another statement, or by you on Form 4137. Self-employed people can’t deduct more than their net income from the business, and workers in certain specified service trades or businesses are excluded.
Overtime
This deduction covers only the premium part of overtime, the “half” in time-and-a-half that the Fair Labor Standards Act requires. If your regular rate is $30 an hour and you earn $45 for an overtime hour, only $15 of that hour counts. The cap is $12,500, or $25,000 on a joint return. Starting with 2026 pay, employers report qualified overtime on the W-2 in box 12 with code TT, so you won’t have to estimate it as many workers did for 2025.
Car loan interest
You can deduct up to $10,000 a year of interest on a loan for a new car, minivan, van, SUV, pickup or motorcycle. It must weigh under 14,000 pounds (gross vehicle weight rating), be for personal use, and have had its final assembly in the United States. The loan must have started after Dec. 31, 2024, and be secured by the vehicle. Used vehicles and leases don’t qualify. Refinanced qualifying loans generally do. You must put the vehicle identification number (VIN) on your return each year you claim the deduction. Getting a lower rate in the first place, as covered in how to negotiate a car loan rate, still saves more than any deduction.
Seniors
Each person who is 65 or older by Dec. 31 can deduct an extra $6,000. That is on top of the existing additional standard deduction for age, which for 2026 is $1,650 per qualifying spouse on a joint return and $2,050 for single filers. The $6,000 shrinks by 6% of MAGI above $75,000, or $150,000 on a joint return. For a single filer, it phases out completely at $175,000.
Changes for itemizers and donors
SALT. The cap on deductible state and local income (or sales) and property taxes rose from $10,000 to $40,000 for 2025 and $40,400 for 2026. Above $505,000 of MAGI, the cap drops by 30% of the excess, but not below $10,000. For a joint filer, the cap reaches the $10,000 floor at about $606,333 of MAGI. The higher cap rises 1% a year through 2029 and then goes back to $10,000 in 2030.
Charitable gifts. Starting in 2026, if you don’t itemize, you can deduct up to $1,000 ($2,000 joint) of cash gifts to qualifying charities on a new line of Form 1040. Gifts to donor-advised funds and gifts of property don’t count. If you do itemize, only the part of your gifts that exceeds 0.5% of your AGI is deductible. Our guide to giving to charity and still getting a tax break works through both rules.
Top bracket. Starting in 2026, filers in the 37% bracket get a reduced benefit from itemized deductions. The law cuts their itemized deductions by 2/37 of the smaller of total itemized deductions or taxable income above the 37% threshold, so each deducted dollar is worth about 35 cents instead of 37.
Families, health accounts and expired credits
- Child Tax Credit. $2,200 per qualifying child for 2025 and 2026, with up to $1,700 refundable for 2026. The child needs a Social Security number, and so does at least one parent.
- Trump accounts. These are new savings accounts for children. A child who is a U.S. citizen with an SSN and was born from 2025 through 2028 can get a one-time $1,000 federal deposit if a parent elects it on Form 4547. Contributions have been accepted since July 4, 2026, up to $5,000 a year from families, including up to $2,500 from an employer. Family contributions aren’t deductible, and withdrawals generally can’t begin until the year the child turns 18.
- Child care. Starting in 2026, the child and dependent care credit can cover up to 50% of qualifying expenses for lower-income families. The dependent care FSA limit rises from $5,000 to $7,500.
- HSAs. Starting in 2026, Bronze and catastrophic health plans count as HSA-compatible. Our sibling guide on choosing between an HSA and an FSA covers the limits.
- Ended credits. The clean vehicle credits don’t apply to vehicles acquired after Sept. 30, 2025. The home energy improvement credit and the residential clean energy credit (solar, for example) ended for work done after Dec. 31, 2025.
- Marketplace health coverage. Starting with 2026 returns, there’s no cap on how much excess advance premium tax credit you must repay if your income comes in higher than you estimated.
Worked example: three sample 2026 returns
Household A is a married couple filing jointly with two children under 17 and $120,000 of AGI. One spouse earned $6,000 of overtime premium pay. They paid $1,800 of interest on a loan for a new, U.S.-assembled SUV bought in 2026 and gave $1,500 in cash to charity. They also paid $5,000 in state income tax, $4,800 in property tax and $9,000 in mortgage interest.
Their itemized deductions would total $19,700: $9,800 of SALT, $9,000 of mortgage interest and $900 of gifts after the $600 floor (0.5% of AGI). That is well below the $32,200 standard deduction, so they take the standard deduction. They can still claim all $1,500 of gifts on the non-itemizer line.
| Household A (married, joint) | Standard deduction only | With the new deductions |
|---|---|---|
| AGI | $120,000 | $120,000 |
| Standard deduction | $32,200 | $32,200 |
| Charitable deduction (non-itemizer) | $0 | $1,500 |
| Overtime deduction | $0 | $6,000 |
| Car loan interest deduction | $0 | $1,800 |
| Taxable income | $87,800 | $78,500 |
| Tax before credits | $10,040.00 | $8,924.00 |
| Child Tax Credit (2 × $2,200) | $4,400 | $4,400 |
| Federal income tax | $5,640.00 | $4,524.00 |
The new deductions remove $9,300 from taxable income and save $1,116.00. All of the savings come at the household’s 12% rate. The credit itself is $400 higher than the $2,000 per child under prior law.
Household B is a retired couple, both 67, filing jointly with $160,000 of MAGI, including the taxable part of their Social Security. Their standard deduction with the age add-on is $35,500. Because their MAGI is $10,000 over the $150,000 threshold, each spouse’s $6,000 senior deduction drops by $600, to $5,400, for $10,800 total. Taxable income falls from $124,500 to $113,700, and their tax falls from $16,814.00 to $14,438.00, a $2,376.00 saving.
Household C files jointly with $550,000 of MAGI and pays $45,000 in state and local taxes. Their MAGI is $45,000 over the threshold, so the SALT cap drops by $13,500, from $40,400 to $26,900. That is still well above the old $10,000 cap.
When not to count on these breaks
- You file separately. Married people filing separately can’t claim the tips, overtime or senior deductions.
- You’re buying a car for the deduction. At a 12% rate, $1,800 of interest saves $216. A used or imported car, a lease, or a cash purchase gets nothing, and a cheaper car often saves more than the deduction is worth.
- Your overtime isn’t FLSA overtime. Overtime paid only under a union contract or company policy, beyond what federal law requires, may not qualify. Salaried exempt employees generally don’t qualify either.
- You’re planning past 2028. Four of the new deductions end after 2028, and the higher SALT cap ends after 2029. Don’t build a long-term budget around them.
- Your income is near a phase-out. In the phase-out ranges, each extra dollar of income also shrinks a deduction, so your effective tax rate is higher than your bracket. Planning moves that lower AGI are covered in how to lower your tax bill before year-end.
What is not final yet
As of October 2026, the IRS had posted only draft 2026 versions of Form 1040 (dated Aug. 19, 2026) and Schedule A (dated May 12, 2026). The draft 1040 adds a line for the non-itemizer charitable deduction, and line numbers may still change. The IRS had not yet published 2027 inflation adjustments for the brackets and standard deduction. Check the final 2026 instructions, or use the IRS Tax Withholding Estimator, before you file or change your withholding.
FAQ
Is “no tax on tips” really no tax?
No. It is a federal income tax deduction of up to $25,000, and it phases out at higher incomes. Social Security and Medicare taxes still apply to tips, and your state may tax them.
Do I need to itemize to get the senior, tips, overtime or car loan deductions?
No. All four go on Schedule 1-A, and you can claim them on top of the standard deduction. They lower taxable income but not AGI.
Does the senior deduction mean Social Security is no longer taxed?
No. The rules for taxing Social Security benefits didn’t change. The $6,000 deduction can offset some of the taxable portion, depending on your income.
My car loan started in 2024. Can I deduct the interest?
No. The loan must have started after Dec. 31, 2024. The IRS says refinancing a qualifying loan generally keeps the interest eligible, but refinancing a 2024 loan doesn’t make it a qualifying loan.
Should I change my withholding?
If you expect a large new deduction, such as substantial overtime premium pay, the IRS Tax Withholding Estimator includes these provisions and can show whether a new Form W-4 makes sense. Withholding too little can lead to a bill or an underpayment penalty, so recheck it if your income changes.
Sources
- IRS, IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill (IR-2025-103), accessed Oct 2026
- IRS, Revenue Procedure 2025-32, accessed Oct 2026
- IRS, One, Big, Beautiful Bill provisions: Individuals and workers, accessed Oct 2026
- IRS, One, Big, Beautiful Bill provisions, accessed Oct 2026
- IRS, Fact Sheet FS-2025-03: Tax deductions for working Americans and seniors, accessed Oct 2026
- IRS, Schedule 1-A (Form 1040), Additional Deductions (2025), accessed Oct 2026
- IRS, FS-2026-13: Questions and answers about the deduction for qualified overtime compensation, accessed Oct 2026
- IRS, Correction to state and local income tax deduction amount in the 2026 Form 1040-ES, accessed Oct 2026
- IRS, Draft 2026 Form 1040 and Draft 2026 Schedule A, accessed Oct 2026
- IRS, Child Tax Credit, accessed Oct 2026
- IRS, Trump Accounts, accessed Oct 2026
- IRS, Guidance on new tax benefits for health savings account participants (IR-2025-119), accessed Oct 2026
- U.S. Government Publishing Office, Public Law 119-21, accessed Oct 2026
This article is general education, not individualized financial, tax or legal advice.