As the IRS begins processing 2025 returns this February, it is crucial for taxpayers to look ahead at the provisions governing their 2026 income. Based on current Treasury guidance and enacted law, here is what you need to know about the 2026 tax pivot.
1. The 2026 Adjusted Standard Deduction
For the 2026 tax year, the IRS has officially released updated inflation adjustments. Under the current framework, the standard deduction has been increased to help taxpayers keep more of their earnings:
- Married Filing Jointly: $32,200.
- Single Filers: $16,100.
- Heads of Household: $24,150.
These figures provide a higher threshold for non-itemizers, effectively lowering the overall taxable income for millions of American households.
2. Implementation of the Overtime Income Deduction
A major highlight of the new legislation is the temporary deduction framework for “qualified overtime compensation.” According to IRS guidance (IR-2025-103), eligible workers may be able to deduct a portion of their overtime premium—specifically the “half” in time-and-a-half pay. This deduction is generally capped at $12,500 for individuals ($25,000 for joint filers) and begins to phase out for those with a Modified Adjusted Gross Income (MAGI) exceeding $150,000.
3. Expanded State and Local Tax (SALT) Deduction Cap
After years of a $10,000 limit, the 2025 legislation significantly expanded the SALT deduction cap. For the 2026 tax year, this cap is raised to $40,400. This expansion is designed to provide relief to homeowners in high-tax states, though it remains subject to income-based phase-outs that begin at a MAGI of approximately $505,000.
4. Digital Asset Compliance: The Rollout of Form 1099-DA
The IRS is modernizing its approach to digital assets with the full implementation of Form 1099-DA. Starting this season, brokers are required to report gross proceeds from digital asset sales. For transactions occurring in 2026, this reporting will expand to include cost basis for covered securities. This shift aims to standardize reporting, though taxpayers should remain diligent in their own record-keeping for decentralized transactions.
5. The New $6,000 Additional Deduction for Seniors
The 2026 tax year introduces a specific benefit for older Americans. Individuals aged 65 and older may now claim an additional $6,000 deduction on top of their existing standard deduction. This provision, effective through 2028, is a cornerstone of the recent bill’s efforts to support seniors in the face of rising living costs.
6. Modernization of Tipped and Gig Income Reporting
Federal policy has shifted toward a “No Tax on Tips” framework, but the administrative implementation is still evolving. Employers are now navigating updated reporting requirements for tipped income on Form W-2. For gig workers, the IRS continues to refine automated compliance tools to ensure that digital payments are accurately categorized, making the distinction between personal and professional transactions more vital than ever.
7. Incentives for American-Made Vehicle Financing
In an effort to support domestic industry, the 2026 rules include a targeted incentive related to interest paid on qualifying loans for “Made-in-America” vehicles. While specific eligibility lists are subject to change, this deduction serves as a fiscal nudge toward domestic manufacturing, provided the taxpayer meets certain adjusted gross income requirements.
FAQs About 2026 Tax Changes
Q: Is the OBBBA permanent?
A: Most of the key provisions, including the overtime and SALT cap increases, are temporary and scheduled to expire after the 2028 tax year unless renewed by Congress.
Q: Do I need special forms for the overtime deduction?
A: For the 2026 tax year, employers will be required to separately report qualified overtime pay on your W-2, which will simplify claiming the deduction on your 1040.
Disclaimer: This article is for informational purposes only and does not constitute official tax, legal, or financial advice. Tax laws are subject to legislative change and individual circumstances. Always consult with a Certified Public Accountant (CPA) or a qualified tax professional regarding your specific situation.
