Working Families Tax Cuts Explained
Plain-English guide to the Working Families Tax Cuts: 2026 standard deduction, senior deduction, no tax on tips and overtime, car loan interest, SALT, and family credits.
On this page
The Working Families Tax Cuts is the IRS's name for the individual provisions of Public Law 119-21, the One Big Beautiful Bill Act signed on July 4, 2025. For most households, the changes that matter are a permanently higher standard deduction ($16,100 single, $32,200 joint, $24,150 head of household for 2026), a $2,200 child tax credit, and four temporary deductions for 2025 through 2028: an extra $6,000 for each person 65 or older, up to $25,000 of tips, up to $12,500 ($25,000 joint) of overtime premium, and up to $10,000 of interest on a new US-assembled vehicle.
This page is the map. Each provision gets a short explanation and a link to the detailed guide or calculator. To add the four temporary deductions together for your household, use the Working Families Tax Cuts savings estimator.
The provisions at a glance
Figures are from the IRS's Working Families Tax Cuts page for individuals and Rev. Proc. 2025-32 unless noted.
| Provision | 2026 amount | Years | Where you claim it |
|---|---|---|---|
| Standard deduction | $16,100 / $32,200 / $24,150 | Permanent, indexed | Form 1040 line 12 |
| Tax brackets (10% to 37%) | 22% starts at $50,400 single / $100,800 joint | Permanent, indexed | Tax computation |
| Child tax credit | $2,200 per child | Permanent, indexed after 2025 | Schedule 8812 |
| Senior deduction | $6,000 per person 65+ | 2025–2028 | Schedule 1-A, Part V |
| No tax on tips | Up to $25,000 | 2025–2028 | Schedule 1-A, Part II |
| No tax on overtime | Up to $12,500 / $25,000 joint | 2025–2028 | Schedule 1-A, Part III |
| Car loan interest | Up to $10,000 | 2025–2028 | Schedule 1-A, Part IV |
| SALT deduction cap | $40,400 | Rises 1% a year through 2029, then $10,000 | Schedule A |
| Estate tax exclusion | $15,000,000 | Permanent, indexed | Form 706 |
The four new Schedule 1-A deductions
All four are claimed on the new Schedule 1-A, whose total goes on Form 1040 line 13b. They share three features:
- No itemizing needed. You get them on top of the standard deduction.
- They come off after AGI. They lower taxable income but not AGI, so they do not reduce AGI-based tests such as Social Security taxability or Medicare premium surcharges.
- They use the same MAGI. Schedule 1-A Part I computes one modified AGI — your AGI plus any excluded foreign or Puerto Rico income — and every part uses it.
Beyond that, the thresholds and phase-out methods differ, which is the most common source of confusion:
| Deduction | Cap | Phase-out starts (single / joint) | Reduction | Rounding |
|---|---|---|---|---|
| Senior | $6,000 per eligible person | $75,000 / $150,000 | 6% of the excess, per person | None |
| Tips | $25,000 per return | $150,000 / $300,000 | $100 per $1,000 | Round down |
| Overtime | $12,500 / $25,000 | $150,000 / $300,000 | $100 per $1,000 | Round down |
| Car loan interest | $10,000 per return | $100,000 / $200,000 | $200 per $1,000 | Round up |
Married couples must file jointly to claim the senior, tips, and overtime deductions. The car loan deduction has no joint-filing requirement, but the $100,000 threshold applies to everyone who is not filing jointly.
Senior deduction
An extra $6,000 for each taxpayer who is 65 by year-end, in addition to the existing age-65 standard deduction ($2,050 single, $1,650 per married spouse in 2026). Each person's amount shrinks by 6% of MAGI above the threshold and is gone at $175,000 single or $250,000 joint. Details: senior tax deduction guide and senior deduction calculator.
No tax on tips
Voluntary tips in one of 70-plus occupations on Treasury's list — servers, bartenders, casino dealers, hotel staff, delivery and rideshare drivers, salon workers, and many more — reported on a W-2, 1099, or Form 4137. Service charges do not count, and self-employed workers are limited to their net profit. Details: no tax on tips guide and no tax on tips calculator.
No tax on overtime
Only the premium portion of overtime the Fair Labor Standards Act requires — the half in time-and-a-half — for FLSA non-exempt workers. Details: no tax on overtime guide and overtime calculator. If you earn both tips and overtime, see tips vs overtime.
No tax on car loan interest
Interest on a loan taken out after December 31, 2024, to buy a new car, SUV, minivan, van, pickup, or motorcycle for personal use, with a GVWR under 14,000 lb and final assembly in the United States. Leases and used vehicles do not qualify, and you must report the VIN. Details: car loan interest deduction guide, US assembly check, and the car loan interest deduction calculator.
Permanent changes that affect almost everyone
Standard deduction. For 2025, the law set the standard deduction at $15,750 single, $31,500 joint, and $23,625 head of household; for 2026, inflation indexing raises it to $16,100, $32,200, and $24,150. See the 2026 IRS inflation adjustments guide or check your number with the standard deduction calculator.
Brackets. The seven rates from 10% to 37% are now permanent. For 2026, the 37% rate starts at $640,600 single and $768,700 joint.
Child tax credit. $2,200 per qualifying child for 2025 and 2026, indexed afterward. The child tax credit calculator applies the income phase-out.
SALT cap. Under 26 U.S.C. §164(b)(7), the cap on deductible state and local taxes rose to $40,000 for 2025 and $40,400 for 2026, increasing 1% a year through 2029. It shrinks by 30% of MAGI above $500,000 for 2025 ($505,000 for 2026), but not below $10,000, and returns to $10,000 in 2030. Married filing separately amounts are half. It only matters if you itemize.
Estate and gift tax. The basic exclusion is $15,000,000 per person for 2026.
Family, charitable, and health provisions starting in 2026
- Child and dependent care credit: the maximum credit rate rises from 35% to 50% of qualifying expenses, with expense limits still $3,000 for one person and $6,000 for two or more.
- Charitable deduction for non-itemizers: up to $1,000 ($2,000 joint) of cash gifts, starting with 2026.
- Trump Accounts: a new tax-advantaged account for children, with a one-time $1,000 federal contribution for eligible children, contributions allowed from July 4, 2026, up to $5,000 a year, and employer contributions up to $2,500.
- Adoption credit: up to $17,670 for 2026, with up to $5,120 refundable.
- HSAs: bronze and catastrophic marketplace plans are treated as HSA-compatible from 2026.
- Clean vehicle credits: the new and used EV credits ended for vehicles acquired after September 30, 2025.
Free · 1-page PDF-ready sheet
Every 2026 tax number on one page
Brackets, standard deduction, capital-gains thresholds, credits, and the new OBBBA deductions — one printable page instead of 40 IRS PDFs.
- All 7 brackets for single, joint, and head of household
- Tips, overtime, senior, and car-loan deduction caps
- 0% / 15% / 20% capital-gains breakpoints
- Credits, estate and gift limits, AMT exemption
Unlocked — the Tax Numbers Cheat Sheet is ready.
Open the Tax Numbers Cheat SheetWorked example: one household, four deductions
A married couple files jointly for 2026 with MAGI of $160,000. One spouse, age 66, works as a restaurant server with $12,000 of qualified tips. The other, age 58, earns $4,000 of qualified overtime premium. They financed a new US-assembled SUV in 2026 and paid $2,500 of interest.
| Deduction | Calculation | Amount |
|---|---|---|
| Tips | Under $300,000, no phase-out | $12,000 |
| Overtime | Under $300,000, no phase-out | $4,000 |
| Car loan interest | Under $200,000, no phase-out | $2,500 |
| Senior (one spouse) | $6,000 − 6% × ($160,000 − $150,000) = $6,000 − $600 | $5,400 |
| Schedule 1-A total | $23,900 |
Their regular deductions are $32,200 plus $1,650 for the spouse over 65, or $33,850. Taxable income falls from $126,150 to $102,250. Both figures sit in the 22% joint bracket ($100,800 to $211,400), so the new deductions save about $23,900 × 22% = $5,258 of federal income tax. Their Social Security and Medicare taxes do not change.
Contrast a salaried, FLSA-exempt couple under 65 at the same income who lease their car: none of the four Schedule 1-A deductions applies, so their benefit from the law is limited to the permanent standard deduction, bracket, and credit changes.
Timeline: what happens when
- 2025 returns (filed in 2026): first year of Schedule 1-A. Employers and lenders had transition relief, so many workers worked out tips and overtime from W-2 box 7, employer statements, or IRS-approved methods.
- 2026 returns (filed in 2027): Form W-2 adds box 12 code TP for tips, code TT for overtime, and box 14b for the tipped occupation code; lenders issue Form 1098-VLI for car loan interest.
- 2028 returns: last year for the four temporary deductions unless Congress extends them.
- 2030: SALT cap reverts to $10,000.
Getting the savings now instead of at tax time
The new deductions reduce your tax when you file, but you can capture them during the year by updating Form W-4 (Step 4(b)) at work, Form W-4P on a pension, or your quarterly estimated payments. Use the tax withholding calculator to see the effect per paycheck. For the broader picture of what changed in 2026, the OBBBA tax changes guide and the Working Families Tax Cuts hub collect every related page.
Frequently asked questions
What are the Working Families Tax Cuts?
Which years do the tip, overtime, car loan, and senior breaks cover?
Do I have to itemize to get the new deductions?
Do the new deductions reduce Social Security and Medicare taxes?
- Working Families Tax Cuts
- OBBBA
- no tax on tips
- no tax on overtime
- car loan interest
Informational only
This guide explains general rules as published by the IRS and other official sources. It is not tax, legal, or investment advice, and it can’t account for your full situation. How we research and update guides.