2026 Tax Law Changes

On July 4, the One Big Beautiful Bill Act (OBBBA) was signed into law. This sweeping piece of legislation extends, revises, and in some cases permanently establishes a wide range of tax rules affecting individuals, families, and businesses. Some provisions took effect immediately, while others begin in 2026 or expire after several years.

Because this law introduced both new opportunities and new limitations, it's worth understanding which changes apply to you and when. Some provisions require action before they expire, while others permanently reshape the tax landscape.

Throughout this article, you'll see whether a provision is Permanent, Temporary, or Effective in 2026. As always, consult with your tax, legal, or accounting professional before making changes based on these updates. The IRS is expected to issue additional guidance as implementation continues.

Individual Taxes

Tax Brackets: 

The current federal income tax brackets have been made permanent. The 12%, 22%, 24%, 32%, 35%, and 37% tax rates will remain in place rather than reverting to the higher pre-2018 rates that were scheduled to return when the Tax Cuts and Jobs Act expired.

Status: Permanent.

Standard Deduction: For 2026, the standard deduction increases to:

• $16,100 for single filers
• $32,200 for married couples filing jointly

Like many tax provisions, these amounts will continue to adjust for inflation.

Effective: 2026.

Bonus Deduction for Seniors: 

Taxpayers age 65 and older may qualify for an additional $6,000 deduction, on top of the regular standard deduction.

A few important details:

• Begins phasing out at $75,000 of income for individuals and $150,000 for married couples filing jointly.
• Phases out completely above $175,000 (single) and $250,000 (married filing jointly).
• Expires after 2028.

Status: Temporary.

State and Local Tax (SALT) Deduction

The SALT deduction cap increases to $40,400 in 2026 and will increase by 1% annually through 2029.

However, the benefit isn't permanent. Beginning in 2030, the cap reverts to $10,000.

The deduction begins to phase out for taxpayers with incomes above $505,000.

Status: Temporary through 2029.

Charitable Contributions

Beginning in 2026, the law changes how charitable deductions work for both taxpayers who take the standard deduction and those who itemize.

If you do not itemize, you may deduct up to $1,000 in qualifying cash charitable contributions if filing single or $2,000 if married filing jointly. This is a meaningful benefit because most taxpayers now claim the standard deduction and previously received no federal tax deduction for charitable giving.

If you do itemize, there is a new limitation. Beginning in 2026, charitable contributions are generally deductible only to the extent they exceed 0.5% of your adjusted gross income (AGI). For example, someone with $200,000 of AGI would generally receive no deduction for the first $1,000 of qualifying charitable contributions.

This change may make strategies such as bunching multiple years of charitable gifts into one tax year, donating appreciated securities, or making Qualified Charitable Distributions (QCDs) from an IRA even more valuable for certain taxpayers.

Effective: 2026.

Families & Children

Child Tax Credit: 

Beginning in 2026, the Child Tax Credit increases to $2,200 per qualifying child and will be indexed annually for inflation.

Status: Permanent.

Dependent Care: Beginning in 2026:

• The Dependent Care FSA contribution limit increases from $5,000 to $7,500.
• The maximum percentage of eligible expenses qualifying for the dependent care credit increases from 35% to 50%.

Effective: 2026.

"Trump" Accounts: 

A new savings vehicle allows eligible children to receive a one-time $1,000 federal contribution if they were born between 2025 and 2028. Parents and others may contribute up to $5,000 annually, and withdrawals generally cannot begin until the child reaches age 18.

We've written additional articles covering these accounts in greater detail if you'd like to learn more:

• Trump Accounts in the Real World: Should Parents and Grandparents Actually Open One?
• Introducing the 530A Accounts
• OBBBA Deep Dive - Part 5: Trump Accounts For Children

Expanded 529 Plans: 

529 plans continue to become more flexible.

Beginning in 2026:

• Annual K-12 tuition expenses eligible for 529 treatment increase from $10,000 to $20,000.
• Additional elementary and secondary education expenses may now qualify.

Remember that state tax treatment may differ from federal rules. Before selecting a plan, consider your state's tax benefits, fees, and investment options. Non-qualified withdrawals remain subject to income tax and a 10% federal penalty on earnings.

New Deductions for Workers

No Tax on Tips: 

Workers receiving tip income may deduct up to $25,000 of qualified tip income.

The deduction is available even if you claim the standard deduction.

It phases out above:

• $150,000 for single filers
• $300,000 for married filing jointly

Status: Temporary through 2028.

No Tax on Overtime: 

Qualified overtime compensation may also be deductible.

Maximum deductions are:

• $12,500 for single filers
• $25,000 for married couples filing jointly

The same income phase-outs apply.

Status: Temporary through 2028.

New Car Loan Interest: 

Between 2025 and 2028, taxpayers may deduct up to $10,000 of interest paid on a qualifying new vehicle loan.

To qualify:

• The vehicle must be new.
• It must be assembled in the United States.
• Income phase-outs begin at $100,000 for individuals and $200,000 for married couples filing jointly.

Status: Temporary through 2028.

Small Business & Investors

Qualified Business Income (QBI) Deduction: 

The popular 20% Qualified Business Income deduction for many sole proprietors, partnerships, and S corporations has now been made permanent.

This removes one of the largest areas of uncertainty facing many business owners.

Status: Permanent.

100% Bonus Depreciation Returns: Businesses may once again expense 100% of qualifying equipment and machinery purchases made on or after January 19, 2025, rather than depreciating those assets over several years.

This may create valuable planning opportunities for businesses considering significant capital investments.

Status: Permanent.

1099-K Reporting Threshold: 

The reporting threshold for third-party payment platforms such as Venmo, PayPal, and Cash App returns to:

• $20,000
• 200 transactions

This replaces the much lower threshold that had been scheduled to apply.

Estate & Gift Taxes

Higher Estate and Gift Tax Exemptions

For 2026, the federal estate and gift tax exemption increases to:

• $15 million per individual
• $30 million for married couples

The exemption will continue to increase with inflation.

This removes much of the uncertainty surrounding the scheduled expiration of the higher exemption established under the Tax Cuts and Jobs Act.

Status: Permanent.

Planning Considerations

The OBBB creates opportunities—but also introduces new planning decisions.

A few examples include:

• Temporary deductions such as the senior deduction, no tax on tips, overtime deductions, and new vehicle loan interest all expire after 2028 unless Congress extends them.
• The new charitable deduction rules may change the best strategy for charitable giving depending on whether you itemize.
• Business owners may benefit from the permanent QBI deduction and the return of full bonus depreciation.
• Families may want to revisit education and savings strategies given the expanded 529 rules and the introduction of Trump Accounts.
• Higher estate tax exemptions provide additional certainty for estate planning but shouldn't eliminate the need for a comprehensive estate plan.

Final Thoughts

While many headlines have focused on individual provisions of the One Big Beautiful Bill Act, the biggest opportunity often comes from understanding how these changes work together.

For one family, that may mean coordinating charitable giving with itemized deductions. For another, it may involve maximizing new deductions while they're available or revisiting long-term retirement and estate planning strategies in light of the permanent tax changes.

Tax laws continue to evolve, and the IRS is expected to issue additional implementation guidance over time. Rather than focusing on any one provision in isolation, consider how these changes fit into your overall financial picture.

How Birch Street Financial Advisors Can Help

Tax planning is integrated into the broader financial planning process. We help clients understand not only what changed, but how those changes may affect retirement income, charitable giving, investment decisions, estate planning, and long-term wealth preservation. If you'd like to discuss how the 2026 tax law changes apply to your situation, we'd be happy to help.

https://www.congress.gov/bill/119th-congress/house-bill/1/text