What’s New With Federal Taxes?

2026 Federal Tax Season Explained: What the One Big Beautiful Bill Act (OBBB) Means for Your Taxes 💰

The 2026 federal tax season, when taxpayers file 2025 tax returns, marks one of the biggest shifts in U.S. tax law in years.

That’s because the One Big Beautiful Bill Act (OBBB) was signed into law on July 4, 2025, permanently extending several 2017 tax cuts while rolling out new deductions, credits, and filing changes that take effect immediately.

If you’re filing a return in 2026, here’s what you need to know.

Major 2025–2026 Tax Changes (Filing Now in 2026)

These updates apply to income earned in 2025 and reported on tax returns filed in early 2026.

1️⃣ New “No-Tax” Deductions (Schedule 1-A) 🧾

One of the most notable changes is the introduction of Schedule 1-A, a brand-new form that allows taxpayers to claim above-the-line deductions, meaning you can benefit even if you take the standard deduction.

New Deductions You Can Claim

💵 Tips Deduction

• Up to $25,000 in qualified tips
• Available to eligible workers in certain service industries
• Reduces taxable income, not subject to itemizing

⏱️ Overtime Deduction

• Deduct the “half” portion of time-and-a-half pay
• Up to $12,500 (or $25,000 for joint filers)

👵 Senior Bonus Deduction

• $6,000 for individuals age 65+
• $12,000 for married couples if both qualify
• Subject to income phase-outs

🚗 Auto Loan Interest Deduction

• Deduct up to $10,000 in interest
• Applies to new vehicles assembled in the U.S.
• Includes cars, SUVs, and pickup trucks

Example: A 67-year-old retiree who also works part-time and earns tips could potentially stack the senior bonus deduction + tips deduction, significantly lowering taxable income even without itemizing.

2️⃣ Higher Standard Deduction for 2025 📈

OBBB increased the standard deduction beyond normal inflation adjustments, making it more attractive for many taxpayers to skip itemizing.

2025 Standard Deduction Amounts

• Single: $15,750
• Married Filing Jointly: $31,500
• Head of Household: $23,625

Why this matters: Higher standard deductions mean less income is taxed, especially when combined with the new Schedule 1-A deductions.

3️⃣ Child Tax Credit Expanded 👨‍👩‍👧‍👦

The Child Tax Credit (CTC) received a modest but meaningful boost.

• Maximum credit: $2,200 per qualifying child
• Refundable portion: Up to $1,700

This helps families who may owe little or no tax, still receive a refund.

4️⃣ SALT Deduction Cap Raised to $40,000 🏡

The long-criticized State and Local Tax (SALT) deduction cap was raised:

• Old cap: $10,000
• New cap: $40,000 (for most taxpayers)

This is especially beneficial for homeowners in high-tax states with large property or income tax bills.

2026 Tax Brackets (For Income Earned in 2026, Filed in 2027)

While most taxpayers are focused on filing now, the IRS has already released inflation-adjusted tax brackets for the 2026 tax year.

Tip: Inflation adjustments help prevent “bracket creep,” keeping more income taxed at lower rates.

Operational & Filing Changes for the 2026 Season ⚙️

Several behind-the-scenes changes affect how you file, not just what you owe.

📱 1099-K Reporting Relief

• Threshold returns to $20,000 AND 200 transactions
• Applies to Venmo, PayPal, Cash App, etc.
• Casual sellers avoid unexpected tax forms again

❌ IRS Direct File Suspended

• IRS Direct File is not available for 2026

Alternatives include:

• IRS Free File
• Commercial tax software
• VITA / TCE assistance programs

💸 Mandatory Electronic Refunds

• Paper refund checks are being phased out
• Direct deposit is now the fastest—and preferred—option

🧮 New 2026 Form W-4

• Updated to reflect:
  • New OBBB deductions
  • Senior bonus
  • Tip and overtime exclusions
• Employees should review withholding to avoid surprises

Best Practice: File Electronically 📤✨

With new forms, deductions, and rules in play, electronic filing is more important than ever.

Benefits include:

• Automatic calculation of new deductions
• Fewer errors with Schedule 1-A
• Faster refunds via direct deposit
• Immediate confirmation from the IRS
• Easier recordkeeping

Bottom Line

✔ OBBB permanently reshapes the tax code

✔ New deductions reduce taxable income—even without itemizing

✔ Seniors, workers, families, and homeowners see targeted benefits

✔ Filing rules are increasingly digital-first

✔ Electronic filing is the safest and fastest way to file in 2026 🚀