2026 Tax Law Changes: New Deductions and How to Prepare for the 2027 Tax Season

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If last spring's filing season felt like a lot of change, get ready: the 2026 tax law changes bring new tax deductions, higher limits and new rules for the 2027 tax season. The One Big Beautiful Bill Act (OBBBA), signed in July 2025, rewrote large parts of the tax code, and 2026 is the first full year many of its provisions apply. That means the returns you'll file in early 2027 will look different from anything you've filed before.

The good news: for most households and small businesses, the changes are favorable. The catch: many of the new breaks come with income limits, documentation requirements and expiration dates. Getting the most out of them takes a little preparation now, before the year closes.

Here's what our clients need to know.

2026 tax changes at a glance

Higher standard deduction: $16,100 single, $32,200 married filing jointly.
New deductions: up to $25,000 of tips, $12,500 of overtime, $10,000 of car loan interest and $6,000 for seniors.
SALT cap: raised to $40,400 for itemizers.
Charitable deduction for non-itemizers: up to $1,000 ($2,000 joint).
Child Tax Credit: up to $2,200 per child.
For businesses: permanent 100% bonus depreciation and a $2,000 threshold for 1099-NEC and 1099-MISC.

First, a quick timing note

The returns you file in 2027 cover your 2026 income, so the 2026 rules and figures below are what matter for next tax season. The IRS released its 2027 inflation adjustments on November 5, 2026; those apply to returns filed in 2028, but they're useful now for planning paychecks, withholding and gifts. We cover both.

2026 standard deduction and tax brackets

About 90% of filers take the standard deduction, so this is the change nearly everyone will feel. OBBBA made the higher standard deduction permanent, and it rises again with inflation.

Filing status	2026 (filed in 2027)	2027 (filed in 2028)
Single / Married filing separately	$16,100	$16,600
Married filing jointly	$32,200	$33,200
Head of household	$24,150	$24,925

Tax rates stay at 10% to 37%; only the income thresholds for each bracket move up. For 2026, the top 37% rate begins above $640,600 for single filers and $768,700 for married couples filing jointly.

New tax deductions for 2026: tips, overtime, car loan interest and seniors

These deductions are available whether or not you itemize, and they're claimed on Schedule 1-A, a form the IRS introduced last season. All four are temporary (tax years 2025 through 2028) and all four phase out at higher incomes. If you're married, you generally must file jointly to claim the tips, overtime and senior deductions.

1. "No tax on tips"

Deduct up to $25,000 of qualified tips.
Tips must be earned in an occupation on the Treasury's list of jobs that customarily receive tips.
Phases out above $150,000 of modified AGI ($300,000 joint).
Tips are still subject to Social Security and Medicare tax, and to most state income taxes.

2. "No tax on overtime"

Deduct the premium portion of qualified overtime (the "half" in time-and-a-half) required under federal wage law, up to $12,500 ($25,000 joint).
Same phase-out as tips: $150,000 / $300,000.
Keep pay stubs and any year-end statement from your employer that breaks out overtime pay.

3. Car loan interest

Deduct up to $10,000 a year of interest on a loan for a new, U.S.-assembled passenger vehicle bought for personal use.
The loan must have originated after December 31, 2024. Used vehicles, leases and business vehicles don't qualify.
Phases out above $100,000 of modified AGI ($200,000 joint).
You'll need the vehicle's VIN and your lender's statement of interest paid.

4. The senior deduction

An extra $6,000 for each taxpayer age 65 or older ($12,000 if both spouses qualify).
This is on top of the regular additional standard deduction for age 65+ and available even if you itemize.
Phases out above $75,000 of modified AGI ($150,000 joint).

Itemized deductions: new SALT cap and charitable giving rules

SALT cap is much higher. The cap on state and local tax deductions is $40,400 for 2026 (up from $10,000 before 2025). It shrinks for modified AGI above $505,000, but never below $10,000. Homeowners in higher-tax areas who haven't itemized in years should run the numbers again. The higher cap is scheduled to drop back to $10,000 in 2030.

Charitable giving has new rules, both good and bad.

New for non-itemizers: starting in 2026, you can deduct up to $1,000 ($2,000 joint) of cash gifts to qualified charities even if you take the standard deduction. Gifts to donor-advised funds don't count.
New floor for itemizers: only charitable gifts above 0.5% of your AGI are deductible.
Cap for top earners: taxpayers in the 37% bracket will see the value of itemized deductions limited to 35%.

Other changes worth knowing: gambling losses are now deductible only up to 90% of losses, and the personal casualty-loss deduction now covers state-declared disasters, not just federal ones.

Child Tax Credit and family tax breaks

Child Tax Credit: up to $2,200 per child for 2026 (up to $1,700 refundable), rising to $2,300 for 2027.
Dependent care FSA: the limit jumped to $7,500 per household (from $5,000), the first increase in decades. Check that your 2027 open-enrollment election takes advantage of it.
Child and dependent care credit: enhanced for 2026, with credit rates that can reach 50% for lower-income families.
Trump Accounts: a new tax-advantaged savings account for children. Contributions opened July 4, 2026, up to $5,000 a year per child, and employers can contribute up to $2,500 tax-free. Children born 2025 through 2028 may also receive a one-time $1,000 federal deposit. If you haven't yet, ask us about the election form.
Educator expenses: teachers can deduct up to $350 ($700 for two educators filing jointly).

2026 HSA, 401(k) and IRA changes

HSAs are open to more people. Bronze and catastrophic plans bought through an ACA marketplace now qualify as HSA-eligible plans, and direct primary care memberships no longer disqualify you.
401(k) limits rose to $24,500 for 2026, with an $8,000 catch-up at age 50+ and $11,250 for ages 60 to 63. IRA limits rose to $7,500, plus a $1,100 catch-up.
New Roth catch-up rule: if you earned more than $150,000 in Social Security wages from your employer in 2025, your 2026 catch-up contributions must go in as Roth (after-tax) dollars. If your plan has no Roth option, you may not be able to make catch-ups at all.

Small business tax changes for 2026

100% bonus depreciation is back, permanently, for qualifying property acquired after January 19, 2025.
Section 179 expensing is up to $2,560,000 for 2026 ($2,640,000 for 2027).
The 20% Qualified Business Income (QBI) deduction is now permanent, with a new minimum deduction of $400 for taxpayers with at least $1,000 of qualified business income.
Fewer 1099s to issue. For payments made in 2026, the 1099-NEC and 1099-MISC threshold rises from $600 to $2,000. The 1099-K threshold for payment apps and online marketplaces is back to $20,000 and 200 transactions. Remember: all income is still taxable, whether or not you receive a form.
Employer childcare credit expanded to as much as $500,000 ($600,000 for eligible small businesses).
Standard mileage rate for business use is 72.5 cents per mile for 2026.

Estate and gift tax exemptions for 2026 and 2027

The lifetime estate and gift tax exemption is $15 million per person for 2026 (rising to $15.48 million in 2027), and OBBBA made the higher exemption permanent. The annual gift exclusion is $19,000 per recipient for 2026 and increases to $20,000 in 2027.

Year-end tax planning checklist for 2026

There are still weeks left in 2026. Here's what we recommend doing before December 31:

Review your withholding. New deductions can mean a bigger refund, or, if you've had a change in income, a balance due. A quick W-4 update can fix either.
Start a "Schedule 1-A" folder. Gather pay stubs showing overtime, tip records, your car loan statement and vehicle VIN.
Time your charitable giving. Decide whether you'll itemize. If not, plan to use the new $1,000/$2,000 deduction for cash gifts. If so, consider "bunching" gifts to clear the new 0.5% floor.
Max out accounts. Top off 401(k), HSA and dependent care FSA contributions, and check whether your catch-ups must be Roth.
Business owners: plan equipment purchases. Property placed in service by December 31 can be fully deducted this year.
Revisit itemizing. With the higher SALT cap, many homeowners will find itemizing beats the standard deduction again.
Organize early. Watch for W-2s, 1099s and new employer statements in January and send them to us as they arrive.

Frequently asked questions

When does the 2027 tax filing season start?

The IRS hasn't announced the date yet. It usually opens in late January; the 2026 season opened January 26. The regular deadline for 2026 returns is April 15, 2027.

What is the standard deduction for 2026?

$16,100 for single filers and married filing separately, $32,200 for married couples filing jointly and $24,150 for heads of household. Taxpayers 65 and older may also qualify for the new $6,000 senior deduction.

Is tip income tax-free in 2026?

Partly. Workers in qualifying tipped occupations can deduct up to $25,000 of tips from federal income tax. Tips are still subject to Social Security, Medicare and most state taxes, and the deduction phases out above $150,000 of modified AGI ($300,000 joint).

Is overtime pay tax-free in 2026?

Only the premium portion. You can deduct the extra half of time-and-a-half pay, up to $12,500 ($25,000 joint), from federal income tax. Your regular pay for overtime hours is still taxed.

Can I deduct charitable donations if I don't itemize?

Yes, starting with 2026. Non-itemizers can deduct up to $1,000 ($2,000 joint) of cash gifts to qualified charities. Gifts to donor-advised funds don't qualify.

What is the SALT deduction limit for 2026?

$40,400, up from $10,000 before 2025. The cap shrinks for modified AGI above $505,000 but never falls below $10,000.

Work with a CPA to prepare for the 2027 tax season

New rules create new opportunities, and also new ways to miss out. The phase-outs and documentation requirements mean the best results come from planning before year-end, not in April.

EC Barrett, LLC is a CPA firm in Atlanta, GA providing tax preparation and year-round tax planning for individuals, families and small businesses. We'll help you sort out which changes apply to you and build a plan for the 2027 filing season.

Disclaimer: This blog is for informational purposes only and does not constitute legal or tax advice. Please consult with a qualified tax professional for personalized guidance.