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DeadlinesThe new tax law: what changes on your 2026 tax return.
By Jane Bono · Published · 12 minute read
The tax law signed on July 4, 2025, often called the One Big Beautiful Bill Act, is the biggest change to individual taxes since 2018. Some parts started on 2025 returns; others begin in 2026. If you work for tips, earn overtime, are 65 or older, bought a new car with a loan, have children, or run a small business, something on your 2026 return is different. This guide sets out what changed, who it helps, and what records to keep, in plain English.
At a glance
| Change | Who it helps | Years |
|---|---|---|
| Deduction for qualified tips, up to $25,000 | Workers in occupations that customarily receive tips | 2025–2028 |
| Deduction for qualified overtime, up to $12,500 ($25,000 joint) | Hourly workers paid overtime | 2025–2028 |
| Extra deduction of up to $6,000 per person 65+ | Seniors, subject to income limits | 2025–2028 |
| Car loan interest deduction, up to $10,000 | Buyers of new US-assembled personal vehicles | 2025–2028 |
| Child Tax Credit up to $2,200 per child | Families with children under 17 | Permanent, indexed |
| Charitable deduction for non-itemizers, $1,000 / $2,000 | People who take the standard deduction | From 2026 |
| 1099-NEC threshold rises to $2,000 | Businesses that pay contractors, and contractors | Payments from 2026 |
| Higher state and local tax (SALT) cap | Itemizers with large property or state taxes | 2025–2029 |
Each has income limits and conditions. Maximums for married couples filing jointly are higher for overtime ($25,000) and charitable gifts ($2,000).
Source: Public Law 119-21; IRS guidance on the 2025 tax law
1. “No tax on tips”
Workers in occupations that customarily and regularly received tips before 2025 can deduct qualified tips, up to $25,000 a year, for 2025 through 2028. Think restaurant servers and bartenders, hairstylists, delivery workers, valets and similar roles. The deduction is available whether or not you itemize.
- Tips must be voluntary and reported: cash and card tips that appear on your W-2, Form 4137 or a 1099 count; mandatory service charges do not.
- The deduction begins to phase out when modified adjusted gross income passes $150,000 ($300,000 for joint filers).
- You need a valid Social Security number, and married couples generally must file jointly.
- It reduces income tax, not Social Security and Medicare taxes on the tips.
Your W-2 (employers are adding tip reporting), your own daily tip log, and any 1099 showing tips. Self-employed workers who receive tips need records too.
2. “No tax on overtime”
For 2025 through 2028, workers can deduct qualified overtime compensation: the premium part of overtime pay required by the Fair Labor Standards Act, meaning the “half” in time-and-a-half. The maximum is $12,500 a year, or $25,000 on a joint return, with the same income phase-out as tips ($150,000 / $300,000).
Example: you earn $20 an hour and work 300 overtime hours at $30. The extra $10 an hour, $3,000, is the qualified part. Overtime paid under a union contract or state rule above the federal requirement may not all count, so check your pay records.
3. Extra deduction for people 65 and older
Each person who is 65 or older by the end of the year can deduct an additional $6,000, for 2025 through 2028, on top of the regular standard deduction and the existing extra amount for age. A married couple who are both 65 or older can deduct $12,000. The deduction phases out once modified adjusted gross income passes $75,000 ($150,000 joint). It is not an exemption from tax on Social Security; it is a deduction that can reduce the tax many retirees pay on their benefits and other income.
4. Car loan interest
Interest on a loan taken out after 2024 to buy a new car, SUV, van, pickup or motorcycle for personal use can be deducted, up to $10,000 a year, for 2025 through 2028. The vehicle's final assembly must be in the United States, which you can check from the vehicle identification number. Used vehicles, leases and business vehicles do not qualify under this rule. The deduction phases out above $100,000 of modified adjusted gross income ($200,000 joint). Keep your lender's year-end interest statement and the purchase contract.
5. Child Tax Credit and family changes
- The Child Tax Credit is up to $2,200 per qualifying child for 2025, rising with inflation in later years. Up to $1,700 per child is refundable for 2026.
- The person claiming it must have a valid Social Security number; for joint filers, at least one spouse must.
- The Child and Dependent Care Credit is larger from 2026 for many families.
- The limit for dependent care flexible spending accounts rises to $7,500 from 2026.
- New “Trump accounts” are savings accounts for children, with a $1,000 government contribution for eligible children born from 2025 through 2028.
Our family tax credit guide covers these in depth.
6. Standard deduction and brackets
The lower tax rates and larger standard deduction from 2018 were made permanent instead of expiring after 2025. For 2026, the standard deduction is $16,100 single, $24,150 head of household and $32,200 married filing jointly.
Source: Public Law 119-21; IRS Revenue Procedure 2025-32
See 2026 tax brackets explained for worked examples.
7. Charitable giving
From 2026, people who take the standard deduction can also deduct cash gifts to qualifying charities: up to $1,000 for single filers and $2,000 for married couples filing jointly. Gifts to donor-advised funds do not count. For people who itemize, only giving above 0.5% of income is deductible from 2026. Keep bank records and written acknowledgements for gifts of $250 or more.
8. State and local taxes (SALT)
The cap on deducting state and local taxes rose from $10,000 to $40,000 for 2025, increasing by 1% a year through 2029, with a reduction for incomes above $500,000. Texas has no income tax, but Dallas County property taxes are among the higher ones in the country, so homeowners with large property tax bills who itemize may benefit.
9. Changes for small businesses and the self-employed
- The 20% qualified business income deduction is now permanent.
- 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025, and the Section 179 expensing limit roughly doubled to $2.5 million.
- The 1099-NEC and 1099-MISC reporting threshold rises from $600 to $2,000 for payments made from 2026.
- The 1099-K threshold for payment apps returned to more than $20,000 and more than 200 transactions.
See our self-employed tax guide and what the $2,000 1099 threshold changes.
10. What ended
- The federal tax credit for buying new and used electric vehicles ended for vehicles acquired after September 30, 2025.
- The credits for home energy improvements and residential clean energy (such as solar) ended for expenses after December 31, 2025.
- Personal exemptions remain at zero.
What to do now
- Save pay stubs or ask your employer how tips and overtime will be shown on your 2026 W-2.
- If you bought a new car with a loan, keep the purchase contract and the lender's interest statement.
- Keep receipts for charitable cash gifts even if you do not itemize.
- Check that everyone on your return, including children, has a valid Social Security number or the right ITIN.
- Bring everything on our documents checklist.
Four Dallas examples: what the changes are worth
These simplified examples show roughly how much federal income tax each change can save, using the 2026 rules and assuming each person is in the 12% or 22% bracket and qualifies. Real results depend on income, other deductions and credits.
| Person | Change that applies | Approximate federal income tax saved |
|---|---|---|
| A server in Deep Ellum with $18,000 of reported tips, 12% bracket | Tips deduction of $18,000 | About $2,160 |
| A warehouse worker with $3,000 of overtime premium, 12% bracket | Overtime deduction of $3,000 | About $360 |
| A retired couple in Lake Highlands, both over 65, 12% bracket | Senior deduction of $12,000 | Up to about $1,440 |
| A nurse who paid $2,500 of interest on a new US-assembled SUV, 22% bracket | Car loan interest deduction of $2,500 | About $550 |
Illustrative only. Savings equal the deduction times the person's tax rate, subject to each deduction's limits and phase-outs.
The pattern is simple: a deduction saves its amount multiplied by your tax rate. That is why the same deduction is worth more to someone in the 22% bracket than in the 12% bracket, and why credits, which reduce tax dollar for dollar, are often worth more to families than deductions.
Common questions
Do I have to itemize to get the tips or overtime deduction?
No. Both are available whether you take the standard deduction or itemize.
Is Social Security now tax-free?
Not exactly. The new $6,000 senior deduction can reduce or eliminate tax on benefits for many retirees, but the rules for taxing Social Security did not change.
My employer did not separate overtime on my W-2. Can I still claim it?
Possibly. IRS guidance allowed reasonable methods for 2025 using pay records. Bring your final pay stub and we will work it out.
Will these deductions last?
Tips, overtime, senior and car loan deductions are scheduled to run from 2025 through 2028 unless Congress changes them. The brackets and standard deduction are permanent.
Not sure which changes apply to you? Book a free consultation or call 972-686-1005. This article summarizes complex rules for general information; it is not tax advice for your situation, and IRS guidance continues to be issued.
This article is general information, not tax advice. What applies to you depends on your situation.
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