As the 2026 tax season approaches, millions of Americans are bracing for a filing experience unlike any in recent memory. The sweeping One, Big, Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has ushered in a host of changes to the federal tax code, promising new opportunities—and new complexities—for individual taxpayers. According to The Economic Times, these reforms, in combination with updates from the Secure 2.0 Act, will impact tax returns filed in 2026 and for years to come.
So, what exactly is different this year? For starters, the IRS will begin accepting 2025 tax returns nationwide on January 26, 2026. At the heart of the new law is a permanent extension of the lower income tax rates first introduced in the Tax Cuts and Jobs Act. While the marginal tax rates themselves remain unchanged from 2024, the income brackets will see slight inflation adjustments. These rates are now considered permanent unless Congress acts again, offering a degree of predictability for taxpayers—at least for now.
But the most headline-grabbing changes come in the form of expanded and new deductions. The State and Local Tax (SALT) deduction cap—a perennial point of debate—has been raised dramatically from $10,000 to $40,000 for many filers, with phase-outs for higher earners. This move, as TD Wealth notes, is expected to provide significant relief for homeowners and residents of high-tax states such as New Jersey and New York. However, for those with a Modified Adjusted Gross Income (MAGI) above $500,000, the expanded benefit begins to fade, and if Congress does not intervene, the cap will revert to $10,000 in 2030.
Workers who rely on tips and overtime will also see meaningful changes. The OBBBA introduces a federal income tax deduction of up to $25,000 for qualified tip income, applicable from 2025 through 2028. There’s a similar break for overtime pay: up to $12,500 (or $25,000 for joint filers) in qualified overtime compensation can be deducted, regardless of whether the taxpayer itemizes or claims the standard deduction. These deductions, however, start to phase out for single filers earning more than $150,000 and joint filers over $300,000. As The Economic Times points out, accurate reporting will be crucial to claim these benefits without running afoul of new penalties for errors or over-claiming.
For seniors, the news is particularly welcome. Starting in 2025, taxpayers aged 65 and older can claim an additional $6,000 deduction (or $12,000 for qualifying couples), though this begins to phase out for single filers with income over $75,000 and married filers over $150,000. This provision aims to help retirees—especially those relying on Social Security—reduce their taxable income and potentially boost their refunds.
Families with children will also benefit from a key update: the child tax credit is now permanent and has been increased to $2,200 per child for the 2025 tax year. The credit will be adjusted for inflation in future years and remains partially refundable, meaning that even families with little or no tax liability can receive a portion as a direct refund. For many working families, this change offers vital support.
Another notable addition is the new car loan interest deduction. For tax years 2025 through 2028, taxpayers who finance a new car assembled in the United States can deduct up to $10,000 in interest paid, with phase-outs starting at $100,000 for single filers and $200,000 for married couples. This measure, as highlighted by TD Wealth, is designed to encourage domestic auto purchases and provide relief to car buyers facing high interest rates.
Looking ahead to 2026, charitable giving rules are also evolving. Cash donations to 501(c)3 nonprofits will be deductible up to $2,000 for joint filers and $1,000 for singles who take the standard deduction—something previously reserved only for those who itemized. For itemizers, only donations exceeding 0.5% of adjusted gross income will qualify for a deduction. High-income taxpayers will see another shift: starting in 2026, the benefit of itemized deductions will be capped at the 35% tax rate for singles earning over $640,600 and joint filers over $768,700.
Retirement planning is not immune to the changes either. Individuals aged 50 or older making $150,000 or more must now make any catch-up contributions to workplace retirement plans (such as 401(k)s or 403(b)s) into Roth accounts—meaning those contributions will not be tax-deductible. Employees aged 60 to 63 can take advantage of an increased catch-up contribution limit of $11,250, though high earners will also be required to use Roth accounts for these contributions. These provisions, as outlined by TD Wealth, are intended to boost after-tax retirement savings while phasing out certain pre-tax benefits for wealthier workers.
All these changes come with a caveat: the IRS itself is warning of potential delays this season. The sheer volume of new deductions, combined with older reporting systems and ongoing staffing shortages, could slow processing—especially for paper returns. Lawmakers and watchdogs have raised concerns about whether the agency has the resources needed to handle the increased workload. Taxpayers may face longer wait times for refunds, and new penalties for errant claims could trigger additional scrutiny or delays.
Tax professionals are urging filers to prepare early, review their withholdings, and use updated IRS guidance and software. As George Conboy, chairman of Brighton Securities, told The Economic Times, “Every taxpayer’s refund will depend on their unique situation. There’s no single number you can rely on.” In other words, assumptions could lead to unpleasant surprises—especially with the expanded deductions and phase-outs targeting higher earners.
For those overwhelmed by the new rules, seeking professional advice is more important than ever. Taxpayers with significant tip or overtime income, substantial state taxes, or complex retirement contributions may benefit from consulting a tax advisor. Free resources are also available at USA.gov for those looking for guidance without the cost.
As the IRS opens its doors for 2025 returns on January 26, 2026, taxpayers face a more generous—but also more complicated—tax landscape. With careful planning and attention to detail, many will find opportunities for larger refunds or smaller bills. But with complexity comes risk, and for those who aren’t prepared, this tax season could bring more questions than answers.
