Major US Tax Changes Taking Effect in 2026: A Comprehensive Overview
As the calendar turns to 2026, American taxpayers will experience significant shifts in the federal tax landscape, largely stemming from the One Big Beautiful Bill Act (OBBBA), signed into law by President Donald Trump on July 4, 2025. This sweeping legislation extended and expanded many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that were scheduled to expire at the end of 2025, while introducing new incentives aimed at boosting economic growth, supporting families, and encouraging investment. Without the OBBBA, millions of taxpayers would have faced substantial tax increases due to the reversion to pre-2017 rules. Instead, the law locks in lower rates and enhanced deductions for most Americans, though it adds complexity in some areas.
The OBBBA’s changes apply primarily to the 2026 tax year (returns filed in 2027), with some retroactive effects for 2025. Economists anticipate these cuts will provide a notable boost to household spending and business investment in 2026, potentially driving stronger economic growth amid ongoing challenges like inflation and labor market shifts. Treasury Secretary Scott Bessent has predicted “gigantic” refunds for many filers in early 2026, as retroactive adjustments lead to overwithheld taxes being returned.
Key Individual Tax Changes
One of the most impactful aspects of the OBBBA is the permanence of the TCJA’s individual income tax structure. The seven-bracket system with rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% remains intact, preventing a reversion to higher pre-2017 rates (up to 39.6%). For 2026, inflation-adjusted brackets are:
- 10%: Up to $11,925 (single) / $23,850 (joint)
- 12%: $11,926–$48,475 / $23,851–$96,950
- 22%: $48,476–$103,350 / $96,951–$206,700
- 24%: $103,351–$197,300 / $206,701–$394,600
- 32%: $197,301–$250,525 / $394,601–$501,050
- 35%: $250,526–$626,350 / $501,051–$752,700
- 37%: Over $626,350 / Over $752,700
These thresholds reflect standard inflation indexing using the Chained CPI, plus targeted boosts for lower brackets.
The standard deduction also sees permanent enhancement. For 2026:
- Single filers: $16,100
- Married filing jointly: $32,200
- Heads of household: $24,150
This is significantly higher than what would have occurred under TCJA expiration (roughly half these amounts). Additional boosts apply for those 65+ or blind.
Itemized deductions receive mixed treatment. The state and local tax (SALT) deduction cap rises to $40,400 for most taxpayers (phased down for the highest earners), providing relief in high-tax states compared to the prior $10,000 limit. However, miscellaneous itemized deductions (e.g., unreimbursed employee expenses) remain eliminated.
New targeted breaks include:
- No tax on tips or overtime pay, benefiting service workers and those in labor-intensive jobs.
- Deductions for auto loan interest on U.S.-assembled vehicles (up to $10,000, for personal use vehicles under 14,000 lbs, 2025–2028).
- Enhanced above-the-line charitable deduction ($1,000 single/$2,000 joint).
- Special provisions for seniors, including reduced taxation on Social Security benefits.
Family-related credits see updates. The Child Tax Credit remains at $2,200 per child (up from $2,000), with expanded refundability. New “Trump Accounts” allow tax-advantaged savings for children (government seed of $1,000, annual contributions up to $5,000 starting mid-2026).
Health Savings Accounts (HSAs) expand eligibility, including for direct primary care arrangements, allowing tax-free use for periodic fees.
Business and Investment Provisions
Businesses benefit substantially, with the OBBBA restoring and extending incentives phased out under prior law:
- 100% bonus depreciation revived for qualified property.
- Full expensing of U.S.-based R&D costs (retroactive options for prior years).
- Loosened interest deduction limits (back to EBITDA basis).
- Permanent 20% qualified business income deduction for pass-through entities (e.g., freelancers, small firms).
- Section 179 expensing limit rises to $2,560,000.
The corporate tax rate stays at 21%, unchanged. Opportunity Zone incentives are made permanent, encouraging investment in designated areas.
Estate and gift taxes see the doubled exemption made permanent and increased: $15 million per person ($30 million joint) for 2026, indexed thereafter. This averts a drop to ~$7 million under expiration.
Economic and Distributional Impacts
Analysts project the OBBBA will increase after-tax income by about 5.4% on average in 2026 compared to expiration scenarios. Lower- and middle-income households gain from rate permanence and new breaks like tip/overtime exemptions. Higher earners benefit from estate changes and pass-through deductions, though some face SALT phaseouts.
Critics note regressive elements: Wealthiest households capture a disproportionate share of cuts, while foreign investors and certain industries gain significantly. Overall revenue loss is substantial (~$570 billion in 2026 alone), contributing to deficit concerns, but proponents argue growth effects will offset costs.
Other notes: Clean energy credits phase out variably; 1099-K reporting thresholds remain high ($20,000/200 transactions); adoption credit rises to $17,670.
Planning Ahead
With increased complexity—new forms for untaxed income, eligibility rules—early consultation with tax professionals is advised. Many changes reward specific behaviors (e.g., U.S. manufacturing, family savings), so aligning finances now can maximize benefits.
In summary, 2026 marks a continuation of pro-growth tax policy, averting a “tax cliff” and introducing fresh incentives. While most taxpayers will see relief, the law’s scope underscores the evolving nature of U.S. fiscal policy in a dynamic economy.
