Key Takeaways
- Tax rates didn’t change, but brackets and deductions did. Inflation adjustments mean more income is taxed at lower rates.
- The SALT deduction cap jumped to $40,400, making itemizing relevant again for many households.
- New deductions for tips and overtime can lower taxable income for qualifying workers without changing payroll withholding.
- Seniors receive new targeted relief in 2026 in the form of an additional $6,000 deduction.
We’ve got another tax season just around the corner. It’s going to be a doozy due to the vast changes brought about by the One Big Beautiful Bill Act.
If you’re wondering what tax changes are coming in 2026 and which ones will have the biggest impact on your return, read on.
What are the 2026 tax brackets and standard deduction?
The familiar seven-bracket structure remains intact in 2026: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. What did change is where those brackets begin and end.
Thanks to inflation adjustments built into OBBBA, all income thresholds moved upward. In practical terms, that means a slightly larger portion of your income is taxed at lower rates than it would have been otherwise.
For context, the 22% bracket applies once taxable income exceeds $50,400 for single filers and $100,800 for married couples filing jointly. That’s up from $48,475/$96,950 for the 22% bracket in 2025.
The OBBBA also added an extra inflation bump to those in the 10% and 12% brackets, giving them a larger adjustment than the higher brackets.
Then there’s the standard deduction, which increased by $350 for single filers (to $16,100) and by $700 for married couples filing jointly (to $32,200).
That’s on top of the sizable boost that already took effect last year. While no single increase is going to be life-changing for your tax situation (if you itemize), these steady adjustments will help reduce effective tax rates over time and make withholding more predictable.
A quick note on personal exemptions: The TCJA eliminated them, and the OBBBA made that permanent. No surprises there.
Should I itemize in 2026?
For years, the $10,000 cap on the state and local tax (SALT) deduction meant many homeowners in high-tax states stopped itemizing because the math simply didn’t work. But because of the OBBBA, the SALT deduction cap has jumped to $40,000, where it will stay through 2029 (with a 1% increase for inflation yearly).
This expansion opens the door for many high-income households (especially those in higher-tax states) to reconsider itemizing. Now, there are a decent number of caveats for high-income households, which I’m happy to go over with you. Just shoot me a reply, and we can discuss how this would apply to your specific situation.
With all of that said, for many Los Angeles households, this is the first time in years that itemizing deserves a second look. If you have substantial property or state income taxes, 2026 is a year to consider revisiting your deduction strategy.
What tax changes are coming in 2026 for employees?
Beginning with tax year 2025 (the W-2s you’re receiving this month), qualifying workers can claim new federal deductions for overtime pay and tips.
A critical distinction: this is a deduction, not an exemption. Your pay is still reported normally by your Culver City employer, and withholding hasn’t changed. The benefit shows up when you file.
For the overtime deduction, employees may deduct up to $12,500 of premium overtime pay, and $25,000 for joint filers. Phase outs start at $150,000 (single) and $300,000 (joint).
The tip deduction goes up to $25,000 per return, and applies only to qualified tips – those customarily earned and properly reported. Over 60 occupations qualify, including servers, bartenders, hair stylists, rideshare drivers, and others.
What will this look like on your tax return this year? Because the IRS hasn’t revised W-2 reporting for this change yet, as an employee, you’ll calculate the deduction using:
– Social Security tips in Box 7
– Monthly tip reports (Form 4070)
– Certain Box 14 disclosures
– Or Form 4137, if applicable
(Independent contractors can use receipts, POS reports, or tip logs.)
The deduction is claimed on new Schedule 1-A, flows to Form 1040, and reduces taxable income, not AGI. So, it won’t affect income-based phaseouts – but it will reduce your final tax bill.
What tax changes are coming in 2026 for families and seniors?
A couple of other 2026 tax changes to take note of:
1. The charitable deduction for non-itemizers. Even if you take the standard deduction, you can deduct up to $1,000 for cash gifts ($2,000 for joint filers) beginning in tax year 2026. So, no impact on the return you’ll file this spring, but something to note for next year.
2. The new senior credit. Taxpayers age 65 and older may qualify for a refundable credit up to $6,000, designed to offset rising costs. In typical credit fashion, it phases out at higher incomes.
3. The Child Tax Credit. You can now permanently reduce your tax bill by up to $2,200 for every qualifying child. And even if you don’t owe any taxes, you could still receive a cash refund of up to $1,700 per child through the credit’s refundable portion.
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Final thoughts
Because of these changes, most filers will either see a small tax cut (or at least gain new options worth reviewing) when they go to file their taxes this spring.
But the key is NOT waiting until spring to review those options. Let’s get a strategy session on the calendar now, so we have the time we need to make sure these updates are working for you.
FAQs
“Do I still get the ‘No Tax on Tips’ deduction if I don’t itemize?”
Yes, both the Tips Deduction and the Overtime Deduction are “above-the-line” adjustments. This means you get to lower your taxable income by up to $25,000 in qualified tips regardless of whether you take the standard deduction or itemize your expenses.
“Can I claim the new $6,000 Senior Deduction and the Standard Deduction?”
Absolutely. The OBBBA created a brand-new Senior Deduction of up to $6,000 ($12,000 for married couples if both are 65+). This is in addition to the existing “Additional Standard Deduction” for seniors.
“Does the $40,000 SALT cap apply if I’m Married Filing Separately?”
No. If you file separately, the $40,400 cap for 2026 is split in half, meaning each spouse is limited to $20,200.
“How do I prove my ‘Overtime Deduction’ if it’s not on my W-2 yet?”
For the 2025 and 2026 tax years, the IRS is in a transition period. While they have released a draft W-2 for 2026 that will track this, for now, you should keep your final pay stubs for the year.
“Can I deduct my $500 donation to a local food bank if I don’t itemize?”
Yes. Starting in tax year 2026, even if you don’t itemize, you can deduct up to $1,000 ($2,000 for joint filers) for cash gifts made to qualified 501(c)(3) organizations. Just remember: this only applies to cash, check, or credit card donations. Donating old clothes or furniture still requires itemizing. And it won’t apply until you’re filing for the 2026 tax year in the spring of 2027.