Tax Changes in 2026
1) The One Big Beautiful Bill Act: A Quick Overview
The OBBBA — sometimes called the Working Families Tax Cut Act — made most of the temporary provisions from the 2017 Tax Cuts and Jobs Act (TCJA) permanent and introduced a handful of entirely new deductions. Without this legislation, tax rates would have jumped back to pre-2018 levels on January 1, 2026, and the popular Qualified Business Income deduction would have disappeared entirely.
Keep in mind that the U.S. tax code is a federal framework. Each state has its own income tax rules (and some states, like Florida and Texas, have no state income tax at all). Always check your state's specific provisions in addition to the federal changes described below.
2) Updated Tax Brackets and Standard Deduction
The IRS has released inflation-adjusted tax brackets for 2026. The seven federal income tax rates — 10%, 12%, 22%, 24%, 32%, 35%, and 37% — stay the same, but the income thresholds have shifted upward by roughly 2.3% to 4%, depending on the bracket. Standard deduction for 2026:
Single filers: $16,100;
Married filing jointly: $32,200;
Head of household: $24,150.
Seniors get an extra break. Taxpayers aged 65 and older can claim an additional standard deduction of $2,050 (single) or $1,650 per qualifying spouse (joint). On top of that, a new temporary deduction of up to $6,000 is available through 2028 for seniors — though it phases out for individuals with modified adjusted gross income over $75,000.
If you're a sole proprietor approaching retirement age, that $6,000 senior deduction stacks on top of the standard deduction and the QBI deduction — potentially lowering your taxable income by tens of thousands of dollars.
3) The QBI Deduction Is Now Permanent
This is arguably the biggest win for small business owners. The Section 199A Qualified Business Income (QBI) deduction — allowing eligible pass-through business owners to deduct up to 20% of their qualified business income — is no longer set to expire.
What's new for 2026:
The income phase-out ranges have been widened. The full deduction is now available for single filers earning up to roughly $200,000 and married-filing-jointly filers up to about $400,000. Phase-outs extend to approximately $275,000 (single) and $550,000 (joint). There's also a new minimum deduction of $400 for anyone with at least $1,000 of QBI from a business in which they materially participate.
4) 100% Bonus Depreciation Is Back — Permanently
Under prior law, bonus depreciation was scheduled to drop to just 20% in 2026. The OBBBA permanently restores 100% first-year expensing for qualifying property acquired after January 19, 2025.
This means businesses can immediately deduct the full cost of equipment, machinery, vehicles, computers, and other eligible assets in the year they're placed in service — instead of spreading the deduction over several years. The Section 179 expensing limit has also been raised to approximately $2.5 million, with a phase-out beginning around $4 million of total qualifying purchases.
If you've been putting off buying new equipment or technology, 2026 is a great year to act. Between 100% bonus depreciation and expanded Section 179 limits, you can write off the full cost of qualifying purchases immediately.
5) No Tax on Tips and Overtime
One of the most talked-about provisions: new federal deductions for workers who earn tips or overtime pay. These deductions are available for tax years 2025 through 2028.
Tips deduction:
Maximum annual deduction: $25,000.
Applies to cash tips in qualifying tipped occupations (wait staff, bartenders, salon workers, personal trainers, gig workers, and more).
Phases out for individuals with modified AGI over $150,000 ($300,000 for joint filers).
Overtime deduction:
Maximum annual deduction: $12,500 ($25,000 for joint filers).
Covers only the "premium" portion of overtime — the extra half of time-and-a-half pay as defined by the Fair Labor Standards Act.
Same income phase-out thresholds as the tips deduction.
Self-employed workers and independent contractors: the overtime deduction currently applies primarily to employees covered by the Fair Labor Standards Act. If you're self-employed, you'll generally continue reporting business income and expenses on Schedule C as before.
Other Key Changes for 2026
Child Tax Credit: The maximum credit rises to $2,200 per qualifying child (up from $2,000 under the original TCJA). This amount will now be adjusted for inflation going forward.
1099-K Reporting Threshold: The threshold stays at $20,000 and 200 transactions. The IRS's earlier proposal to drop it to $600 has been permanently reversed. Additionally, the 1099-MISC and 1099-NEC reporting threshold increases from $600 to $2,000 starting in 2026.
R&D Expenses: Businesses can once again immediately deduct domestic research and development costs (under new Section 174A), reversing the unpopular 5-year amortization rule that took effect in 2022. Small businesses with average annual gross receipts under $31 million can even amend returns for 2022–2024 to claim retroactive relief.
Car Loan Interest Deduction: A new deduction of up to $10,000 per year for interest on qualifying auto loans (new vehicles assembled in the U.S.) is available for tax years 2025–2028, though it phases out for individuals earning over $100,000.
Retirement Contributions: The 401(k) contribution limit rises to $24,500 for 2026. Catch-up contributions for those aged 50+ increase to $8,000, and a special enhanced catch-up of up to $11,250 is available for savers aged 60–63. IRA limits go up to $7,500.
FAQs:
1. What is the One Big Beautiful Bill Act?
The OBBBA is a major tax and spending law signed on July 4, 2025. It made permanent most of the individual and business tax provisions from the 2017 Tax Cuts and Jobs Act that were set to expire at the end of 2025, and introduced new deductions for tips, overtime, auto loan interest, and seniors.
2. Did federal tax rates change for 2026?
No, the seven tax rates (10% through 37%) remain the same. However, the income ranges for each bracket have been adjusted upward for inflation, meaning you can earn slightly more before hitting the next rate.
3. Is the QBI deduction still available for freelancers?
Yes. The 20% Qualified Business Income deduction is now permanent. Freelancers, sole proprietors, and owners of pass-through entities can continue to claim it, subject to income-based phase-outs.
4. How does "no tax on tips" actually work?
It's a deduction, not an exemption — tips are still included in gross income but can be deducted (up to $25,000) when calculating taxable income. Tips are still subject to Social Security and Medicare (FICA) taxes.
Conclusion:
The 2026 tax year marks a turning point for small business owners and self-employed professionals across the United States. The OBBBA didn't just extend expiring provisions — it locked in some of the most valuable tools in the tax code permanently. The QBI deduction isn't going anywhere. Full bonus depreciation is here to stay. And new deductions for tips and overtime put real money back into workers' pockets.
