Notable changes under the One, Big, Beautiful Bill

The tax year 2026 adjustments described below generally apply to tax returns filed in 2027. The tax items for tax year 2026 of greatest interest to most taxpayers include the following dollar amounts:

• Standard Deduction. For tax year 2026, the standard deduction increases to $32,200 for married couples filing jointly. For single taxpayers and married individuals filing separately, the standard deduction rises to $16,100 for tax year 2026, and for heads of households, the standard deduction will be $24,150.

(Additionally, for tax year 2025, the OBBB raises the standard deduction amount to $31,500 for married couples filing jointly. For single taxpayers and married individuals filing separately, the standard deduction for 2025 is $15,750, and for heads of households, the standard deduction is $23,625.)

Standard deductionSingle; Married Filing SeparatelyMarried Filing Jointly; Surviving SpousesHeads of HouseholdsTY 2025 Under OBBB$15,750$31,500$23,625TY 2026 Under OBBB$16,100$32,200$24,150

• Marginal Rates: For tax year 2026, the top tax rate remains 37% for individual single taxpayers with incomes greater than $640,600 ($768,700 for married couples filing jointly). The other rates are:35% for incomes over $256,225 ($512,450 for married couples filing jointly);
  32% for incomes over $201,775 ($403,550 for married couples filing jointly);
  24% for incomes over $105,700 ($211,400 for married couples filing jointly);
  22% for incomes over $50,400 ($100,800 for married couples filing jointly);
  12% for incomes over $12,400 ($24,800 for married couples filing jointly).The lowest rate is 10% for incomes of single individuals with incomes of $12,400 or less ($24,800 for married couples filing jointly).
• Alternative Minimum Tax Exemption Amounts. For tax year 2026, the exemption amount for unmarried individuals is $90,100 and begins to phase out at $500,000 ($140,200 for married couples filing jointly for whom the exemption begins to phase out at $1,000,000).
• Estate Tax Credits. Estates of decedents who die during 2026 have a basic exclusion amount of $15,000,000, up from a total of $13,990,000 for estates of decedents who died in 2025.
• Adoption Credits. The maximum credit allowed for adoptions for tax year 2026 is the amount of qualified adoption expenses up to $17,670, up from $17,280 for 2025. For tax year 2026, the amount of credit that may be refundable is $5,120.
• Employer-Provided Childcare Tax Credit. For tax year 2026, the OBBB significantly enhances an important credit for employers; it increases the maximum amount of employer-provided childcare tax credit from $150,000 to $500,000 ($600,000 if the employer is an eligible small business).

Other notable items affected by indexing

• Earned Income Tax Credits. The tax year 2026 maximum Earned Income Tax Credit (EITC) amount is $8,231 for qualifying taxpayers who have three or more qualifying children, up from $8,046 for tax year 2025. Revenue Procedure 2025-32 contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
• Qualified Transportation Fringe Benefit. For tax year 2026, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $340, up $15 from 2025.
• Health Flexible Spending Cafeteria Plans. For tax years beginning in 2026, the dollar limitation for voluntary employee salary reductions for contributions to health flexible spending arrangements increases to $3,400, up $100 from prior year. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $680, an increase of $20 from tax years beginning in 2025.
• Medical Savings Accounts. For tax year 2026, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,900, up $50 from tax year 2025 – but not more than $4,400, an increase of $100 from tax year 2025. For self-only coverage, the maximum out-of-pocket expense amount is $5,850, up $150 from 2025. For tax year 2026, for family coverage, the annual deductible is not less than $5,850, up from $5,700 for 2025; however, the deductible cannot be more than $8,750, up $200 from the limit for tax year 2025. For family coverage, the out-of-pocket expense limit is $10,700 for tax year 2026, an increase of $200 from tax year 2025.
• Foreign Earned Income Exclusion. For tax year 2026, the foreign earned income exclusion is $132,900 up from $130,000 for tax year 2025.
• Annual Exclusion for Gifts. For tax year 2026, the annual exclusion for gifts remains at $19,000. (However, the annual exclusion for gifts to a spouse who is not a citizen of the United States increases to $194,000 for calendar year 2026, up $4,000 from calendar year 2025.)

Items unaffected by indexing

By statute, certain items that were indexed for inflation in the past are currently not adjusted.

• Personal Exemptions. For tax year 2026, personal exemptions remain at 0, as in tax year 2025. The elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act of 2017 and was made permanent by OBBB. (The personal exemption described here does not include the senior deduction added by OBBB.)
• Itemized Deductions. The limitation on itemized deductions was previously eliminated for tax years 2018 - 2025. The elimination of the limitation was made permanent by OBBB, although it imposes a limitation on the tax benefit from itemized deductions for those taxpayers in the highest tax bracket (37%).
• Lifetime Learning Credits. The modified adjusted gross income (MAGI) amount used to phase out the Lifetime Learning Credit has not been adjusted for inflation for tax years beginning after Dec. 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with MAGI between $80,000 and $90,000 ($160,000 and $180,000 for joint returns).

One, Big, Beautiful Bill Act: Tax deductions for working Americans and seniors

“No Tax on Tips”

• New deduction: Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024, and that are reported on a Form W-2, Form 1099, or other specified statement furnished to the individual or reported directly by the individual on Form 4137.“Qualified tips” are voluntary cash or charged tips received from customers or through tip sharing.
  Maximum annual deduction is $25,000; for self-employed, deduction may not exceed individual’s net income (without regard to this deduction) from the trade or business in which the tips were earned.
  Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
  
• Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.Self-employed individuals in a Specified Service Trade or Business (SSTB) under section 199A are not eligible. Employees whose employer is in an SSTB also are not eligible.
  
  Taxpayers must:include their Social Security Number on the return and
  file jointly if married, to claim the deduction.
  
• Reporting: Employers and other payors must file information returns with the IRS (or SSA) and furnish statements to taxpayers showing certain cash tips received and the occupation of the tip recipient.
• Guidance: By October 2, 2025, the IRS must publish a list of occupations that “customarily and regularly” received tips on or before December 31, 2024.The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and payors subject to the new reporting requirements.
  

“No Tax on Overtime”

• New deduction: Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half” compensation -- that is required by the Fair Labor Standards Act (FLSA) and that is reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.Maximum annual deduction is $12,500 ($25,000 for joint filers).
  Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
  
• Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
  Taxpayers must:include their Social Security Number on the return and
  file jointly if married, to claim the deduction.
  
• Reporting: Employers and other payors are required to file information returns with the IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year.
• Guidance: The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and other payors subject to the new reporting requirements.

“No Tax on Car Loan Interest”

• New deduction: Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify.)Maximum annual deduction is $10,000.
  Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
  
• Qualified interest: To qualify for the deduction, the interest must be paid on a loan that is:originated after December 31, 2024,
  used to purchase a vehicle, the original use of which starts with the taxpayer (used vehicles do not qualify),
  for a personal use vehicle (not for business or commercial use) and
  secured by a lien on the vehicle.
  

If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.

• Qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States.
• Final assembly in the United States: The location of final assembly will be listed on the vehicle information label attached to each vehicle on a dealer's premises. Alternatively, taxpayers may rely on the vehicle’s plant of manufacture as reported in the vehicle identification number (VIN) to determine whether a vehicle has undergone final assembly in the United States.The VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA) provides plant of manufacture information. Taxpayers can follow the instructions on that website to determine if the vehicle’s plant of manufacture was located in the United States.
  
• Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.The taxpayer must include the Vehicle Identification Number (VIN) of the qualified vehicle on the tax return for any year in which the deduction is claimed.
  
• Reporting: Lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.
• Guidance: The IRS will provide transition relief for tax year 2025 for interest recipients subject to the new reporting requirements.

Deduction for Seniors

• New deduction: Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law.The $6,000 senior deduction is per eligible individual (i.e., $12,000 total for a married couple where both spouses qualify).
  Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
  
• Qualifying taxpayers: To qualify for the additional deduction, a taxpayer must attain age 65 on or before the last day of the taxable year.
• Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
  Taxpayers must:include the Social Security Number of the qualifying individual(s) on the return, and
  file jointly if married, to claim the deduction.