2026 Tax Preview: The Big Beautiful Rewrite

With the 2026 filing season on the horizon, taxpayers and advisors alike are facing what may be the biggest overhaul of individual tax law in decades. Passed in July 2025, the One Big Beautiful Bill Act (OBBBA) reshapes key parts of the federal income tax code — making some provisions permanent, adjusting others, and introducing new deductions that will hit your 2025 tax return filed in early 2026.

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Whether you’re an hourly worker, a retiree, a car buyer, or just someone who wants to keep more of your hard-earned money, these changes matter. Below, we unpack the most impactful provisions so you can plan ahead.

Expanded & Permanently Higher Standard Deduction

Perhaps the most widespread change is the bump in the standard deduction — the baseline amount most taxpayers subtract from income before figuring their tax. Under the OBBBA, standard deductions aren’t just indexed for inflation; they’ve also been increased above those historic adjustments. For the 2026 tax year, that means:

• $32,200 for married couples filing jointly
• $16,100 for single filers and married filing separately
• $24,150 for heads of household

Why this matters: the standard deduction determines how much income is actually taxed. A higher standard deduction means fewer dollars are pulled into taxable income — and that directly lowers your tax bill. For many middle-income taxpayers, this is the most visible tax benefit when their returns are filed in 2026.

“No Tax on Tips” — A New Deduction for Tipped Workers

Service industry workers and others who rely on tips have long been required to report tip income and pay tax on it. Under the OBBBA, workers can now deduct qualified tip income from their taxable income for 2025 through 2028. The rules work like this:

• Up to $25,000 of qualified tips per year can be deducted
• This deduction is above the line — meaning it reduces your taxable income even if you don’t itemize
• It begins to phase out at higher incomes ($150,000 for single filers and $300,000 for joint filers)

Importantly, Social Security and Medicare taxes still apply to tips, but the federal income tax liability on that income can now be reduced or effectively eliminated up to the cap. That’s a meaningful change for the roughly ~6 million Americans in reporting tip-eligible jobs.

“No Tax on Overtime” — A Break for Hourly Workers

In a somewhat similar vein, the OBBBA creates a new deduction for qualified overtime pay earned during 2025–2028. The idea is straightforward: if you worked extra hours, the premium portion of that pay — above your base wage — won’t count against your federal taxable income up to a cap.

Here’s how it works:

• Up to $12,500 of qualified overtime pay deductible per individual ($25,000 for married couples filing jointly)
• Only the extra wage portion beyond your regular rate qualifies — typically the “half-time” in time-and-a-half pay
• The deduction phases out at higher income levels above the thresholds noted above

This deduction doesn’t change payroll taxes (Social Security and Medicare still apply), but it lowers your taxable income come tax time. For many working Americans, that means a tangible reduction in tax owed.

Extra Deduction for Seniors (65+)

The OBBBA also provides special relief for older taxpayers. On top of whatever standard deduction you qualify for, if you’re age 65 or older, you can claim an additional $6,000 deduction ($12,000 for married couples where both spouses qualify).

Here’s what you need to know:

• This senior deduction is separate from the regular additional standard deduction traditionally available for age/blindness
• It phases out based on income thresholds starting at $75,000 (single) and $150,000 (joint)

For retirees and older adults living on fixed incomes, this can be a significant tax break — potentially lowering taxable income by thousands more than before.

New Deduction for Auto Loan Interest

One of the more unusual but potentially valuable provisions is a deduction for interest on qualified auto loans. Previously, individual taxpayers couldn’t deduct interest on personal car loans, but the OBBBA changes that — with conditions.

Here’s how it works:

• You can deduct up to $10,000 of interest paid on a loan used to purchase a new, U.S.-assembled passenger vehicle
• The vehicle must be for personal use (no business vehicles), and the loan must meet timing and lien requirements
• The deduction is available even if you don’t itemize and phases out at higher income levels

This is a rare addition to the individual tax code — historically, mortgage interest has been deductible, but auto interest has not. For car buyers in 2025, this could be a worthwhile planning consideration.

What This All Means for Your 2026 Filing Season

Together, these provisions represent a significant shift in the federal tax landscape, especially for:

• Workers with tips or overtime earnings
• Retirees and seniors seeking every deduction they can find
• Drivers financing new vehicles
• Middle-income taxpayers using the standard deduction

These changes aren’t just academic — they translate into real-world tax savings and require attention this year as you prepare your 2025 returns.

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