2026 Tax Changes: How the New Law Affects Your Refund

For years, many tax guides warned that rates would jump in 2026 when parts of the 2017 tax law expired. That didn’t happen. The One, Big, Beautiful Bill Act, signed in July 2025, made the lower tax rates permanent and added several new deductions aimed at workers, seniors, and families. For most people, the 2026 tax year, which you’ll file in early 2027, looks more like a tune-up than a shock.

This guide explains the 2026 numbers, the new deductions and who qualifies, two worked examples that show how much they can change a tax bill, and the steps to take now so you don’t leave money on the table.

The 2026 tax brackets and standard deduction

The seven tax rates stay the same (10% to 37%), and the income ranges were adjusted for inflation. The standard deduction, which most households use instead of itemizing, also went up:

Filing status	2026 standard deduction
Single or married filing separately	$16,100
Married filing jointly	$32,200
Head of household	$24,150

Rate	Single: taxable income	Married filing jointly: taxable income
10%	Up to $12,400	Up to $24,800
12%	$12,401 to $50,400	$24,801 to $100,800
22%	$50,401 to $105,700	$100,801 to $211,400
24%	$105,701 to $201,775	$211,401 to $403,550
32%	$201,776 to $256,225	$403,551 to $512,450
35%	$256,226 to $640,600	$512,451 to $768,700
37%	Over $640,600	Over $768,700

Remember that these are marginal rates. Only the part of your income inside each range is taxed at that rate, so moving into a higher bracket never makes your whole income taxed at the higher rate.

The 4 new deductions, and who qualifies

Four new deductions apply for tax years 2025 through 2028. You can claim them whether you itemize or take the standard deduction. Each requires a valid Social Security number, and married couples must file jointly.

Deduction	Maximum	Starts phasing out above (MAGI)
Qualified tips	$25,000 a year	$150,000 single / $300,000 joint
Qualified overtime (the “half” in time-and-a-half)	$12,500 single / $25,000 joint	$150,000 single / $300,000 joint
Car loan interest on a new, U.S.-assembled vehicle	$10,000 a year	$100,000 single / $200,000 joint
Seniors 65 and older	$6,000 per eligible person	$75,000 single / $150,000 joint

A few details that trip people up:

• Tips: only tips in occupations that customarily received tips count, and the IRS published a list of those occupations. Workers in certain service fields, such as law, health, and financial services, are not eligible.
• Overtime: only the premium part required by the Fair Labor Standards Act counts. If you earn $20 an hour and $30 for overtime, only the extra $10 per overtime hour can be deducted.
• Car loan interest: the loan must have started after December 31, 2024, be secured by the vehicle, and be for personal use. Used cars and leases don’t qualify, and you must list the vehicle’s VIN on your return.
• Seniors: the $6,000 is on top of the existing extra standard deduction for people 65 and older, which is $2,050 for single filers and $1,650 per eligible spouse for married couples in 2026.

Other 2026 changes worth knowing

• Child Tax Credit: $2,200 per qualifying child, with up to $1,700 refundable for 2026.
• Earned Income Tax Credit: up to $8,231 for families with three or more children.
• Charitable gifts without itemizing: starting in 2026, non-itemizers can deduct up to $1,000 in cash donations ($2,000 for married couples filing jointly).
• State and local taxes (SALT): the cap on this itemized deduction is $40,400 for 2026, reduced for very high incomes.
• Freelancers and small businesses: the threshold for Forms 1099-NEC and 1099-MISC rises to $2,000 for payments made in 2026. Income below that is still taxable.
• “Trump Accounts” for children: a new type of savings account, with a $1,000 government deposit for eligible children born from 2025 through 2028.

Example 1: a server with tips

Jasmine is single and works as a restaurant server. She earned $48,000 in 2026, including $9,000 in reported tips.

• Without the tips deduction: $48,000 minus the $16,100 standard deduction leaves $31,900 of taxable income. Tax: 10% on the first $12,400 ($1,240) plus 12% on the remaining $19,500 ($2,340) = $3,580.
• With the tips deduction: she also subtracts $9,000, leaving $22,900. Tax: $1,240 plus 12% on $10,500 ($1,260) = $2,500.

The deduction cuts her federal income tax by $1,080. Tips are still subject to Social Security and Medicare taxes, so her paycheck withholding for those doesn’t change.

Example 2: a retired couple

Walter (67) and Elaine (66) file jointly. After counting their pension and the taxable part of their Social Security, they have $60,000 of income, and their modified AGI is well under $150,000.

• Old rules: standard deduction $32,200 plus $1,650 each for being 65 or older = $35,500. Taxable income: $24,500, all in the 10% bracket. Tax: $2,450.
• With the senior deduction: they also subtract $6,000 each, for a total of $47,500. Taxable income: $12,500. Tax: $1,250.

That’s $1,200 less in federal income tax for the year. Couples with higher income get a smaller deduction as it phases out above $150,000.

What to do now: a 6-step checklist

1. Check your withholding. If you’ll claim a new deduction, too much tax may be coming out of each paycheck. Use the IRS Tax Withholding Estimator and submit a new Form W-4 if needed. Getting the money in your paycheck now beats waiting for a refund.
2. Keep records of tips and overtime. Make sure your employer is reporting them correctly, and save your pay stubs. Self-employed workers need their own records.
3. Save your car loan paperwork, including the purchase contract showing the VIN and the date the loan started.
4. Track cash donations with receipts, even if you don’t itemize.
5. Report all income, including side gigs and payment app income, even if you don’t receive a tax form. See our guide on Venmo, PayPal and Zelle taxes.
6. File for free if you can. IRS Free File offers free tax software to many lower- and middle-income filers, and volunteer programs (VITA and TCE) prepare returns for free for people who qualify.

4 mistakes to avoid on your 2026 return

• Assuming tips and overtime are tax-free. They’re deductible up to the limits, but still count as income and still have payroll taxes taken out.
• Claiming the car deduction for a used car or lease. Neither qualifies.
• Forgetting the phase-outs. Higher earners get a reduced deduction or none at all.
• Spending a bigger refund before it arrives. A refund is a good chance to build savings. See our guide on building an emergency fund.

If you’re 50 or older, lower taxes can also free up money to save for retirement. Our guide on catching up on retirement savings after 50 covers the 2026 contribution limits. Retirees should also see our guide to the Social Security COLA.