Tax Changes 2026

Permanent changes: provisions that do not expire

Several OBBBA provisions are permanent and will affect tax planning indefinitely.

The SALT deduction cap rises from $10,000 to $40,000 for all filing statuses. This is the single most impactful change for taxpayers in high-tax states like New York, California, New Jersey, and Connecticut. The $40,000 cap applies to the combined total of state and local income taxes (or sales taxes if elected) and property taxes. For married filing jointly filers in high-tax states who have been limited to $10,000 since 2018, this effectively quadruples their deductible state and local taxes. The cap phases out for higher-income taxpayers: it begins reducing above $400,000 of adjusted gross income ($200,000 for married filing separately) at a rate of $20 for every $1,000 of income above the threshold, with a floor of $10,000.

The Qualified Business Income (QBI) deduction under Section 199A is made permanent. This deduction allows owners of pass-through businesses (sole proprietorships, partnerships, S-corporations, and LLCs taxed as partnerships) to deduct up to 20% of their qualified business income. The TCJA originally set this deduction to expire after 2025. Making it permanent provides long-term certainty for business structure decisions. The existing limitations based on taxable income, W-2 wages, and the unadjusted basis of qualified property remain unchanged.

Section 174 domestic research and experimental expenditure immediate expensing is restored. Since 2022, businesses have been required to capitalise and amortise R&D expenditures over 5 years (domestic) or 15 years (foreign). OBBBA restores immediate expensing for domestic R&D, which is a significant cash flow benefit for technology companies, manufacturers, and any business with substantial research activities. Foreign R&D remains subject to 15-year amortisation.

100% bonus depreciation is restored permanently. The TCJA's 100% bonus depreciation had been phasing down by 20 percentage points per year starting in 2023. OBBBA restores 100% first-year bonus depreciation for qualified property placed in service, with no phase-down. This applies to new and used property with a recovery period of 20 years or less, including vehicles (subject to luxury auto limits), equipment, furniture, and qualified improvement property.

SALT cap rises to $40,000 permanently, QBI deduction is permanent, domestic R&D can be expensed immediately again, and 100% bonus depreciation is restored without phase-down. (OBBBA Sections [as enacted]; IRC Section 164(b)(6) (SALT cap); IRC Section 199A (QBI); IRC Section 174 (R&D); IRC Section 168(k) (Bonus depreciation))

Temporary provisions: 2025 through 2028

Several high-profile OBBBA provisions are temporary, applying only to tax years 2025 through 2028. Planning around these sunsets is essential.

The tip income exclusion allows qualifying workers to exclude up to $25,000 of tip income from federal income tax. Tips remain subject to FICA (Social Security and Medicare) taxes. To qualify, the taxpayer must be in an occupation that customarily receives tips, and the exclusion phases out for taxpayers with adjusted gross income above $160,000. Employers still report all tips on Form W-2, and taxpayers claim the exclusion on their return. This provision is significant for restaurant workers, bartenders, hairdressers, valets, and similar service workers.

The overtime pay exclusion allows qualifying employees to exclude overtime pay (hours worked beyond 40 per week for hourly workers, or equivalent for salaried workers) from federal income tax. Like tips, overtime remains subject to FICA taxes. The exclusion is capped at $10,000 per year and phases out above $150,000 AGI. This provision benefits manufacturing workers, healthcare workers, first responders, and other hourly employees who regularly work overtime.

The auto loan interest deduction allows taxpayers to deduct interest on loans used to purchase a motor vehicle, up to $10,000 of interest per year. The vehicle must be purchased new (not used), and the loan must be originated after the enactment date. This provision sunsets after 2028 and is not available for vehicles purchased for business use (which have separate depreciation and interest deduction rules).

The senior bonus standard deduction provides an additional $2,000 standard deduction for taxpayers age 65 and older, on top of the existing additional standard deduction for seniors. This effectively doubles the additional standard deduction amount for qualifying seniors, reducing their taxable income by a meaningful amount.

Tip exclusion ($25,000 cap), overtime exclusion ($10,000 cap), auto loan interest deduction ($10,000 cap), and senior bonus standard deduction ($2,000) are all temporary provisions expiring after 2028. (OBBBA Sections [as enacted]; applicable new IRC sections for tips, overtime, auto loan interest, and senior deduction)

Information reporting changes: 1099-NEC and 1099-K thresholds

OBBBA significantly changes two key information reporting thresholds that affect freelancers, gig workers, and small businesses.

The 1099-NEC reporting threshold increases from $600 to $2,000. Currently, any business that pays a non-employee (independent contractor) $600 or more in a year must file Form 1099-NEC reporting that payment. OBBBA raises this threshold to $2,000, meaning businesses that pay contractors less than $2,000 annually no longer need to issue a 1099-NEC. This reduces the reporting burden for small businesses with many small vendor payments. However, income is still taxable regardless of whether a 1099 is issued. Freelancers who receive payments under $2,000 from individual clients must still report that income.

The 1099-K threshold is restored to $20,000 and 200 transactions. The American Rescue Plan Act of 2021 lowered the 1099-K threshold from $20,000/200 transactions to $600 (with no transaction minimum), but the IRS delayed implementation multiple times. OBBBA permanently restores the $20,000 and 200 transaction threshold. Payment settlement entities (PayPal, Venmo, Stripe, Square, etc.) will only issue 1099-K forms to payees who exceed both the $20,000 and 200 transaction thresholds. This is a significant relief for casual sellers and small-volume online sellers who would have received 1099-K forms under the $600 threshold.

For self-employed individuals, these reporting changes do not change your tax obligation. All income is taxable when received, regardless of reporting thresholds. These changes affect the forms businesses and payment processors must file, not the amount of tax you owe.

1099-NEC threshold rises from $600 to $2,000 for contractor payments. 1099-K threshold returns to $20,000 and 200 transactions, permanently ending the $600 threshold. (OBBBA Sections [as enacted]; IRC Section 6041 (1099-NEC threshold); IRC Section 6050W (1099-K threshold))

Child Tax Credit and other individual changes

The Child Tax Credit (CTC) increases from $2,000 to $2,200 per qualifying child under age 17. The refundable portion (Additional Child Tax Credit) increases proportionally. The existing income phase-out thresholds remain at $200,000 ($400,000 married filing jointly). The TCJA's expanded CTC was set to revert to $1,000 per child in 2026; OBBBA instead makes the $2,200 level permanent.

The individual income tax brackets from the TCJA are made permanent. The seven-bracket structure with a top rate of 37% (reduced from the pre-TCJA 39.6%) was scheduled to sunset after 2025. OBBBA makes these rates permanent, providing long-term certainty for income tax planning. The standard deduction amounts from the TCJA are also made permanent and will continue to be adjusted for inflation annually.

The estate and gift tax exemption, doubled by the TCJA to approximately $13.6 million per individual in 2025, is made permanent under OBBBA. Without this legislation, the exemption would have reverted to approximately $7 million in 2026. This is significant for estate planning, as it means married couples can transfer approximately $27.2 million free of estate and gift tax permanently.

The individual mandate penalty for not having health insurance, reduced to $0 by the TCJA effective 2019, remains at $0. Some states (California, Massachusetts, New Jersey, Rhode Island, Vermont, and DC) have their own individual mandates with penalties.

Child Tax Credit rises to $2,200 (permanent), TCJA individual rates made permanent at 37% top rate, estate tax exemption of ~$13.6M per individual made permanent. (OBBBA Sections [as enacted]; IRC Section 24 (CTC); IRC Section 1 (Tax rates); IRC Section 2010 (Estate tax exemption))

No tax on overtime — $12,500 above-the-line deduction (2025–2028 only)

For tax years 2025 through 2028, OBBBA creates an above-the-line deduction for qualified overtime compensation of up to $12,500 per taxpayer ($25,000 for married filing jointly). The deduction applies to the overtime premium — the additional pay above the regular rate required by the Fair Labor Standards Act — not to total wages. It is income-limited: the deduction phases out for single filers with MAGI above $150,000 and for MFJ filers above $300,000. Like the no-tax-on-tips provision, this is a standalone deduction available whether or not the taxpayer itemises. It is explicitly temporary — scheduled to sunset after the 2028 tax year unless Congress extends it. Wage workers in manufacturing, healthcare, construction, and transportation who regularly earn FLSA-covered overtime are the primary beneficiaries.

Overtime premium pay is deductible up to $12,500 single / $25,000 MFJ. Temporary 2025-2028. Phases out above $150k single / $300k MFJ MAGI. (OBBBA 2025 (new IRC provision for overtime deduction); FLSA overtime definition incorporated by reference)

Section 174A — domestic R&D expensing fully restored (permanent)

The TCJA 2017 eliminated immediate expensing of research and experimental (R&E) costs and instead required five-year amortisation of domestic R&E and 15-year amortisation of foreign R&E, effective for costs paid or incurred after December 31, 2021. For tax years 2022–2024, businesses were forced to capitalise and amortise rather than immediately deduct domestic research costs. OBBBA reverses this for domestic R&E by enacting new Section 174A, which permanently restores full immediate expensing of domestic research and experimental expenditures paid or incurred after December 31, 2024. Foreign R&E costs continue to be amortised over 15 years. For businesses with unamortised domestic §174 balances from 2022–2024, OBBBA allows an election to either: (a) write off the remaining balance entirely in the first tax year beginning after December 31, 2024, or (b) deduct it ratably over two years (2025 and 2026). This is a permanent structural change with no sunset — it applies to domestic R&D costs in 2025, 2026, and all subsequent years.

Domestic R&D costs are immediately deductible again under new IRC §174A. Permanent from 2025 forward. Foreign R&E still amortised over 15 years. Existing 2022–2024 balances can be written off immediately or over 2 years. (IRC §174 (prior law — mandatory amortisation); IRC §174A (OBBBA — domestic R&E immediate expensing); OBBBA 2025)

Senior bonus deduction — $4,000 per qualifying taxpayer (2025–2028 only)

For tax years 2025 through 2028, OBBBA provides an additional above-the-line deduction of $4,000 per qualifying taxpayer aged 65 or older by the end of the tax year. This is separate from and in addition to the standard deduction. It applies whether the taxpayer itemises or takes the standard deduction — it functions as its own standalone deduction line. The $4,000 amount is per person, not per return — a married couple filing jointly where both spouses are 65 or older can claim $8,000 total. The deduction is income-limited and phases out at higher MAGI levels. Like the tips and overtime deductions, this provision is temporary and is scheduled to sunset after the 2028 tax year. It is designed to provide targeted relief to older Americans on fixed incomes who face rising costs.

$4,000 additional deduction per qualifying taxpayer aged 65+. Temporary 2025-2028. Per-person amount — both spouses qualify separately on a joint return. (OBBBA 2025 (senior bonus deduction provision))