If you’ve been following financial news, you know that 2026 was seen as a “tax cliff”- the year many tax cuts were set to expire. However, with the passage of the One Big Beautiful Bill Act (OBBBA) in mid-2025, the landscape has shifted dramatically. Instead of a simple expiration, we are looking at a mix of permanent extensions, new deductions, and significant adjustments that will impact your wallet.
Whether you are a freelancer, a salaried employee, or a retiree, the rules of the game are changing. From a higher SALT deduction cap to new tax breaks for overtime and tips, understanding these updates now is valuable for maximizing your refund. In this guide, we’ll break down exactly what is changing for the 2026 tax year and how you can prepare.
The “One Big Beautiful Bill Act”: A New Tax Era
The primary driver of the 2026 tax changes is the One Big Beautiful Bill Act (OBBBA). This regulation was designed to prevent the massive tax hikes that would have occurred if the 2017 Tax Cuts and Jobs Act (TCJA) had been allowed to sunset completely.
Instead of reverting to higher rates, the OBBBA makes many of the previous tax cuts permanent while introducing new targeted relief. The goal? To keep more money in the pockets of working Americans while adjusting for inflation. For taxpayers, this means stability in tax rates but new opportunities (and rules) for deductions.
Why 2026 Marks a Turning Point for Your Wallet
2026 is a changing year because it is the first full tax year where these new permanent rules apply. We are moving away from “temporary” relief measures into a more settled tax code. This stability allows for better long-term planning, but it also means you can no longer ignore certain strategies hoping the laws will change back.
Key themes for 2026 include:
- Inflation Adjustments: Brackets and standard deductions have jumped significantly to match the cost of living.
- Targeted Relief: Specific groups (seniors, service workers, car buyers) get brand new tax breaks.
- Higher Caps: Limitations on state tax deductions have finally been loosened.
2026 Tax Brackets: Rates Stay Low, Thresholds Shift
One of the biggest fears was that tax rates would spike back up to 39.6%. Under the new law, the seven income tax brackets remain effectively the same as they have been since 2018: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
However, the income thresholds – the amount of money you can earn before jumping into a higher bracket – have increased.
- Single Filers: You can earn more before hitting the 22% or 24% brackets.
- Married Filing Jointly: The top 37% rate now applies to income exceeding roughly $768,700.
- Heads of Household: Thresholds have similarly expanded, providing more room in lower tax tiers.
This “bracket expansion” ensures that a cost-of-living raise doesn’t accidentally push you into a higher tax bracket.
Standard vs. Itemized: The New Calculation
The “Standard vs. Itemized” decision is more interesting in 2026 than it has been in years.
1. A Bigger Standard Deduction for Everyone
For most taxpayers, the standard deduction remains the easiest way to lower taxable income. Thanks to inflation adjustments and the OBBBA, the 2026 standard deduction amounts are projected to be:
- Single Filers: ~$16,100
- Married Filing Jointly: ~$32,200
- Heads of Household: ~$24,150
This massive increase means millions of taxpayers will still find it more beneficial to take the standard deduction rather than tracking every receipt.
2. Itemized Deductions – What’s Changed
If you do itemize, the rules have shifted in your favor. The biggest change involves the State and Local Tax (SALT) deduction, which we will cover in detail below. Additionally, the limit on mortgage interest deduction remains generally favorable, and charitable contribution rules have been tightened slightly for high earners (with a new floor for some), making strategic bundling of donations important.
Credits & Exemptions: Keeping More of What You Earn
The 2026 updates introduce several “above-the-line” deductions – meaning you can claim them even if you take the standard deduction.
1. Hikes for Families: EITC & Child Tax Credit
- Child Tax Credit (CTC): The credit has been increased to $2,200 per child (up from $2,000), with refundable portions adjusted for inflation.
- Earned Income Tax Credit (EITC): The maximum credit for families with three or more children has risen to over $8,231, providing substantial relief for low-to-moderate-income households.
2. New “No Tax” Deductions (Tips, Overtime, Car Loans)
This is a major feature of the new law:
- Tips & Overtime: New provisions allow workers to deduct qualified tip income and overtime pay, effectively making them tax-free for many earners.
- Car Loan Interest: You can now deduct interest on auto loans for qualified personal-use vehicles (specifically those assembled in the U.S.), up to a cap of roughly $10,000.
- Senior Deduction: Taxpayers aged 65+ get an additional standard deduction boost of $6,000.
3. Estate Planning & AMT: Higher Exemptions
- Estate Tax: The exemption didn’t get cut in half as feared. Instead, it has risen to approximately $15 million per person, protecting more family businesses and estates.
- Alternative Minimum Tax (AMT): Exemption amounts have increased to ~$90,100 for singles, drastically reducing the number of middle-class families hit by this “extra” tax.
Retirement & Savings: New Opportunities
1. Supercharging Your 401(k) and IRA
Inflation adjustments have pushed contribution limits higher.
- 401(k) & 403(b): Limits are expected to exceed $23,500.
- IRAs: Annual limits remain steady but indexed, likely hitting $7,000+.
- Catch-Up Contributions: If you are over 50, “catch-up” limits remain, but remember that for high earners, these must often be made as Roth (after-tax) contributions starting soon.
2. HSAs and FSAs: Health Savings Updates
Health Savings Accounts (HSAs) remain a triple-threat tax tool (tax-free in, growth, and out).
- Self-only coverage deductible: Rises to ~$2,900.
- Family coverage deductible: Rises to ~$5,850. Maxing out these accounts is one of the most efficient ways to lower your 2026 taxable income.
3. What This Means for Your Long-Term Strategy
With rates locked in, “Roth conversions” (paying tax now to grow tax-free later) remain an attractive strategy for those who believe tax rates might eventually rise further in the distant future.
SALT Cap Relief & High-Income Strategies
1. The SALT Cap Increase: From $10k to $40k
For years, residents in high-tax states like New York and California were hurt by the $10,000 cap on deducting state and local taxes. The OBBBA provides massive relief here:
- The SALT deduction cap is temporarily raised to $40,000 for most filers.
- This allows you to write off significantly more property tax and state income tax.
2. Planning for High Earners
If you earn over $500,000, be aware that the SALT relief phases out. You will need to calculate whether the reduced cap still benefits you or if alternative strategies (like charitable trusts) are better.
3. How This Affects the Average Filer
For the “ordinary” homeowner with a median income, the $40,000 cap likely covers all your state’s taxes and property taxes. This makes itemizing much more attractive than it has been since 2017.
Getting Ready: Your 2026 Tax Action Plan
1. Q4 Checklist: Don’t Wait Until April
- Review Withholding: Use the IRS estimator to adjust your W-4, especially if you have a tip or overtime income that is now deductible.
- Harvest Losses: If you have investments, sell losing positions to offset gains (Tax-Loss Harvesting).
- Defer Income: If possible, defer bonuses to 2027 if you expect them to be in a lower bracket, though with rates stable; this is less critical than before.
2. Organizing Your Records
To claim the new deductions, you need proof. Start a folder for:
- Car loan statements (showing interest paid).
- Pay stubs clearly separating overtime and tips.
- Property tax bills (to maximize the new $40k SALT cap
3. Making the Right Choice: Standard vs. Itemized
Don’t assume standard is best anymore.
- Do you pay >$10k in state taxes?
- Did you buy a US-made car?
- Do you have significant mortgage interest? If yes, run the numbers both ways. The new SALT cap could swing you back to itemizing.
Conclusion
The 2026 tax law changes represent a significant shift toward lower taxes for working families and relief for homeowners. With the SALT cap raised, standard deductions increased, and new credits for overtime and tips, there are more ways than ever to reduce your liability.
However, these perks only work if you know they exist. Navigating the new “One Big Beautiful Bill Act” regulations can be complex, and missing a single deduction could cost you thousands.
Don’t leave money on the table in 2026.
At Countsure, we specialize in helping taxpayers decode these new laws and build strategies that maximize every available credit. Whether you need help planning your withholding or filing your return, our team is here to ensure you are fully compliant and optimized.
Contact Countsure today for your 2026 Tax Strategy Consultation!
Frequently Asked Questions (FAQs)
No. Thanks to the OBBBA, the tax rates (10% through 37%) remain the same. However, the income thresholds for these brackets have increased, meaning you can earn more money before entering a higher tax bracket.
The State and Local Tax (SALT) deduction cap has been raised from $10,000 to $40,000 for most filers. This is a major benefit for homeowners in high-tax states.
Yes, under the new provisions, interest on auto loans for qualified personal-use vehicles (specifically those assembled in the U.S.) is deductible, up to a cap of roughly $10,000.
The 2026 changes allow for a specific deduction on qualified overtime pay, effectively making those extra hours tax-free or significantly tax-reduced for many workers.
You will file your 2026 tax return by April 15, 2027. If that date falls on a weekend or holiday, the deadline moves to the next business day.
Parth Shah, Managing Director
(CPA-US, FCA, RV-S&FA, DISA)
Parth Shah who is head of Accounts and Book keeping has experience of more than 10 years. A Certified Public Accountant – US, fellow Chartered Accountant, Registered Valuer and Diploma in Information System Audit.
