Tax Changes Happening in 2026

As the year begins, the IRS has announced new updates for the upcoming tax year. In order to remain compliant, taxpayers must adhere to the new regulations and changes outlined in the "One Big Beautiful Bill Act" (OBBBA).

Standard Deduction for 2026

For tax year 2026, the standard deduction for married couples filing jointly rises to $32,200, an increase of $700 from 2025.
For single taxpayers or those filing married filing separately, the standard deduction rose to $16,100, a $350 increase from 2025.
Heads of households or unmarried taxpayers who have dependents and pay more than half of the expenses of a household, can take a standard deduction of $24,150 in 2026, an increase of $525 from 2025.
Those who are 65 and older are entitled to extra standard deduction which will add to the base standard deductions. Those who are single or the head of household, can get an extra $2050. Meanwhile, those who are married and filing jointly can get an additional $1650 per qualifying person.

Income Tax brackets

There will still be seven tax brackets, but the income range for each rate has shifted slightly to account for inflation. For 2025, the following rates and income ranges apply:

Tax Rate	For Single Filers	For Married Individuals Filing Joint Returns	For Heads of Households
10%	$0 to $12,400	$0 to $24,800	$0 to $17,700
12%	$12,401 to $50,400	$24,801 to $100,800	$17,701 to $67,450
22%	$50,401 to $105,700	$100,801 to $211,400	$67,751 to $105,700
24%	$105,701 to $201,775	$211,401 to $403,550	$105,701 to $201,750
32%	$201,776 to $256,525	$403,551 to $512,450	$201,751 to $256,200
35%	$256,526 to $640,600	$512,451 to $768,700	$256,201 to $640,600
37%	Over $640,600	Over $768,700	Over $640,600

IRA and 401(k) limits

For 2026, the IRA contribution limits are now $7,500 for those under the age of 50 and $8,600 for those age 50 or older.
For 2026, the standard 401(K) contribution limits are now $24,500 for those under the age of 50 and $32,500 for those age 50 or older. For those who are aged 60-63, there may be a higher super catch-up which allows an additional contribution of $11,250 above the standard 401(K) for a total of $35,750.

Health savings accounts (HSA)

For 2026, the maximum amount taxpayers can contribute to an HSA has increased to $4,400 for an individual and $8,750 for a family. Individuals who are 55 or older can contribute an extra $1,000 catch-up contribution.

New deduction for car loan interest

Individuals who obtained a loan in 2025 to buy a new (not previously owned) car, minivan, van, SUV, pickup truck or motorcycle might be able to deduct up to $10,000 of interest paid during the year.
To qualify, the vehicle’s final assembly must have taken place in U.S. and must weigh less than 14,000 pounds.
The deduction is gradually phased out based on income. Once the individual’s modified adjusted gross income (MAGI) surpasses $100,00 ($200,00 for joint filers), the deduction is reduced by $200 for every $1,000(or portion thereof) over the applicable threshold. Taxpayers are no longer eligible for the deduction if they paid $10,000 in interest and their MAGI is $150,000 or more ($250,000 for joint filers).
As with the new deduction for people 65 and older, taxpayers can claim the car loan interest deduction whether or not the tax return is itemized, but the deduction is available only for the 2025 through 2028 tax years.
Lenders are required to provide a statement to their borrowers by January 31,2026 indicating the total amount of interest paid on the auto loan in 2025.

New deduction for the tipped workers

The OBBBA includes a new tax deduction for certain tipped workers available for tax years 2025 through 2028.
Qualification is determined by occupation and employer; and will apply to full-time employees and retirees working limited hours. The employee must have received tips while performing a job that “customarily and regularly” involved tipping before 2025, such as a waiter, bartender, hairdresser, ride-share driver or hotel maid.
Taxpayers who have a qualifying job may be able to deduct up to $25,000 of cash tips they received in 2025. The deduction is gradually phased out if their MAGI exceeds $150,000 ($300,000 for joint filers), dropping by $100 for every $1,000 of MAGI over the threshold. The deduction shrinks to $0 if their MAGI is greater than $400,000 ($550,000 on a joint return).
Tip deductions can be claimed even if they are not itemized on the return. Taxpayers who are married must file a joint return to claim the deduction.

New deduction for overtime pay

The OBBBA also introduced a temporary federal income tax deduction, not an exemption, for a portion of qualified overtime pay.

Deductible Amount: Eligible employees can deduct the "half" portion of their "time-and-a-half" federal Fair Labor Standards Act (FLSA) overtime pay.
Annual Limit: The maximum annual deduction is $12,500 for single filers and $25,000 for those married filing jointly.
Income Phase-out: The deduction begins to phase out for taxpayers with a MAGI over $150,000 (single filers) or $300,000 (joint filers).
Other Taxes Still Apply: This deduction only applies to federal income tax. Overtime wages remain subject to federal payroll taxes, such as Social Security and Medicare (FICA), and federal unemployment taxes (FUTA).
Eligibility: The deduction is available to non-exempt W-2 employees. Overtime pay must be required under the federal FLSA; any extra pay not legally required (e.g., weekend premium pay not exceeding 40 hours in a workweek) does not qualify.

Child Tax Credit

Child tax credit has been increased from $2000 to $2200.

Conclusion

It is essential that all individuals and businesses file their taxes correctly. For more information regarding tax changes and how they may impact you, contact the trusted Chugh, LLP accounting team.

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Tax Changes Happening in 2026

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