Complete Guide to Tax Changes Under the OBBBA

The One Big Beautiful Bill Act (OBBBA), Pub. L. 119-21, signed July 4, 2025, made the 2017 TCJA individual tax structure permanent and layered on new temporary deductions, a higher SALT cap, a bigger child tax credit, and new limits for high earners. Some changes took effect for 2025; many more start with the 2026 tax year you file in 2027.

Short answer: for most households the biggest OBBBA changes are four new deductions you can take without itemizing — up to $25,000 of tips, up to $12,500 ($25,000 joint) of overtime premium pay, up to $10,000 of interest on a new U.S.-assembled car loan, and $6,000 per person age 65+ — plus a $2,200 child tax credit and a SALT cap of $40,400 for 2026. High earners face a new cap on the value of itemized deductions and a faster AMT exemption phaseout.

This guide explains what changed and who it helps. For every inflation-adjusted dollar amount in one table set, see the 2026 IRS inflation adjustments guide.

OBBBA timeline: which changes apply when

Sources: IRS OBBB provisions page, IRS individuals and workers page, and the "What's New" section of Pub. 505 (2026).

Did the OBBBA change tax brackets and the standard deduction?

It made them permanent rather than changing the rates. Without the OBBBA, the TCJA brackets would have reverted to pre-2018 rates (top rate 39.6%) in 2026. Instead the seven rates stay, indexed each year. For 2026 the 37% bracket begins above $640,600 single and $768,700 joint (Rev. Proc. 2025-32).

The law also raised the standard deduction above the inflation formula for 2025 — to $15,750 single, $31,500 joint, and $23,625 head of household — and indexed it from there to $16,100, $32,200, and $24,150 for 2026. The personal exemption stays at $0 permanently. Run your bracket math in the federal tax bracket calculator.

The four new Schedule 1-A deductions

All four are "below-the-line" in practice: you claim them on the new Schedule 1-A whether you itemize or not. Each requires a valid Social Security number, and married couples generally must file jointly.

Worked example: a server with tips

A single server earns $48,000 of wages plus $12,000 of reported tips (W-2 box 12, code TP) in 2026, with no other income.

• Without the tips deduction: taxable income $60,000 − $16,100 = $43,900. Tax: $1,240 + 12% × ($43,900 − $12,400) = $5,020.
• With it: taxable income $43,900 − $12,000 = $31,900. Tax: $1,240 + 12% × $19,500 = $3,580.
• Federal income tax saved: $1,440. Social Security and Medicare are still withheld on the tips.

Estimate your own result with the no tax on tips calculator; the no tax on tips guide covers which occupations qualify.

Worked example: overtime premium

An hourly worker paid $30 an hour works 300 overtime hours in 2026 at $45. Only the $15 premium counts: 300 × $15 = $4,500 deductible, not the full $13,500 of overtime pay. In the 22% bracket that saves $990. Employers report the qualified amount in W-2 box 12, code TT. Use the overtime deduction calculator.

Worked example: retired couple and the senior deduction

A married couple, both 66, has $120,000 of pension and IRA income in 2026.

• Standard deduction: $32,200 + 2 × $1,650 (age 65+) = $35,500.
• Senior deduction: 2 × $6,000 = $12,000, with no phaseout because MAGI is below $150,000.
• Taxable income: $120,000 − $35,500 − $12,000 = $72,500. Tax: $2,480 + 12% × ($72,500 − $24,800) = $8,204.
• Without the senior deduction, taxable income would be $84,500 and tax $9,644. Savings: $1,440 — 12% of $12,000, because this couple is in the 12% bracket, not 22%.

If their MAGI were $170,000, the deduction would shrink by 6% × $20,000 = $1,200, to $10,800 in total. See the senior deduction calculator and the senior tax deduction guide.

Car loan interest

The car loan deduction covers interest on a loan taken out after 2024 to buy a new car, SUV, pickup, van, or motorcycle whose final assembly was in the United States; leases do not qualify (IRS). A $45,000 loan at 7% generates roughly $3,000 of first-year interest — worth $660 to a filer in the 22% bracket. The car loan interest deduction calculator applies the cap and phaseout.

What happened to the SALT cap?

The state and local tax deduction cap rose from $10,000 to $40,000 for 2025 and $40,400 for 2026 ($20,200 married filing separately). For high earners the cap shrinks by 30% of modified AGI above the threshold — $500,000 for 2025 and $505,000 for 2026 — but never below $10,000 (Schedule A instructions; Pub. 505).

Example: a joint filer with $550,000 of MAGI and $45,000 of state income and property tax in 2026. Reduction: 30% × ($550,000 − $505,000) = $13,500. Cap: $40,400 − $13,500 = $26,900 deductible. At MAGI of about $606,333 or more, the cap bottoms out at $10,000.

The SALT deduction only helps if you itemize. The standard deduction calculator compares the two.

New limits on itemized deductions and charitable gifts

Starting in 2026:

• Top-bracket cap. Itemized deductions are reduced by 2/37 (Pub. 505 rounds it to 5.4%) of the lesser of your itemized deductions or your taxable income above the 37% threshold. The effect: each dollar of itemized deduction saves at most 35 cents instead of 37. The itemized deduction cap guide walks through the math.
• Charitable floor for itemizers. Only gifts above 0.5% of AGI count. With $200,000 of AGI, the first $1,000 of donations produces no deduction.
• Charitable deduction for non-itemizers. Up to $1,000 ($2,000 joint) of cash gifts to operating charities; gifts to donor-advised funds don't count.
• Gambling losses. Deductible only up to 90% of losses, capped at winnings. Gambling winnings reported on Form W-2G also have a higher threshold from 2026 ($2,000 instead of $600); how lottery winnings are taxed covers both changes with examples, and the gambling wins and losses calculator compares your tax under the 2025 and 2026 rules.
• Mortgage insurance premiums become deductible again, permanently.
• Personal casualty losses stay limited to federally declared disasters, now plus state-declared disasters.
• Educators keep the $350 above-the-line deduction and can also itemize additional unreimbursed classroom costs.

Credits: child tax credit, child care, adoption, and energy

Check your credits with the child tax credit calculator and the adoption tax credit calculator.

Accounts and workplace benefits

• Trump accounts. A new IRA-style account for children. The government deposits $1,000 for eligible U.S.-citizen children born 2025 through 2028; families can contribute up to $5,000 a year starting July 4, 2026, and employers up to $2,500. Elections are made on Form 4547.
• HSAs. Bronze and catastrophic marketplace plans count as HSA-compatible from January 1, 2026; direct primary care arrangements costing up to $150 a month ($300 family) no longer block contributions; telehealth before the deductible is permanently allowed (Notice 2026-5). See the HSA calculator.
• Dependent care FSA. The exclusion rises from $5,000 to $7,500 ($3,750 married filing separately) for 2026 (Pub. 15-B).
• Bicycle commuting. The exclusion is permanently eliminated; transit and parking stay at $340 a month each for 2026.
• Student loan repayment under an educational assistance plan stays tax-free (up to $5,250) permanently.

High earners: AMT, estate tax, and QBI

• AMT. Exemptions stay at TCJA levels ($90,100 single, $140,200 joint for 2026), but the phaseout now starts at $500,000 / $1,000,000 and removes 50 cents of exemption per dollar instead of 25. Test incentive stock option exercises in the AMT calculator.
• Estate and gift tax. The basic exclusion is $15 million per person for 2026, indexed after; the scheduled cut to roughly half never happened.
• QBI deduction. The 20% deduction for pass-through income is permanent. The phase-in range widens to $75,000 ($150,000 joint) above the $201,750 / $403,500 thresholds, and anyone with at least $1,000 of qualified business income from an active business gets a minimum $400 deduction. Use the QBI deduction calculator.
• Form 1099 thresholds. The minimum for Forms 1099-NEC and 1099-MISC rises from $600 to $2,000 for payments made in 2026, indexed after.

Health coverage: premium tax credit changes

Starting in 2026, households with income above 400% of the federal poverty line are no longer eligible for the premium tax credit, and there is no longer a cap on repaying excess advance credit — even below 400% (Pub. 505). If you buy marketplace coverage, report income changes promptly and consider extra withholding to cover a possible repayment. The premium tax credit calculator estimates your credit, the 400% cutoff for your household, and the repayment if your income comes in higher than you told the marketplace.

What to do before December 31, 2026

1. Collect the new W-2 codes. Tips (box 12, code TP) and overtime (box 12, code TT) will drive your Schedule 1-A deductions; check your pay stubs now.
2. Update your W-4. Step 4(b) of Form W-4 lets you enter expected deductions — including the new tips, overtime, and senior deductions — so less is withheld during the year. The tax withholding calculator helps size the change.
3. Rethink charitable timing. If you itemize and expect to be in the 37% bracket, the new cap and 0.5% floor make bunching gifts into one year more valuable.
4. Check SALT and the phase-down. If your MAGI is near $505,000, a retirement contribution or deferral can preserve thousands of dollars of SALT deduction.
5. Use dependent care dollars. If your employer offers the higher $7,500 dependent care FSA, elect it during open enrollment.

Key dates for 2026 returns

• January 15, 2027: fourth-quarter 2026 estimated tax payment due.
• April 15, 2027: 2026 returns and balances due; last day for 2026 IRA and HSA contributions.
• October 15, 2027: extended 2026 returns due.

For a plain-language summary of the provisions the administration calls the Working Families Tax Cuts, see working families tax cuts explained and the Working Families Tax Cuts hub.