2026 Tax Law Changes: What the One Big Beautiful Bill Means for Your Return

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, represents the most significant overhaul of the U.S. federal tax code since the 2017 Tax Cuts and Jobs Act. For the 2026 tax year, millions of Americans will see material changes to their filings — from new deductions for tipped and overtime income to a substantially increased state and local tax (SALT) deduction cap and sweeping modifications to charitable giving rules.

The Tax Foundation estimates that the OBBBA will reduce federal taxes by an average of nearly $2,300 per filer in 2026, with the largest benefits flowing to middle-income households that claim the standard deduction. However, the law also introduces new complexity: a fresh Schedule 1-A, revised information-reporting requirements, and phase-outs that affect high earners. Whether you file as an individual, a gig worker, or a small-business owner, understanding these changes before year-end is essential.

1. No Tax on Tips and Overtime — With Guardrails

Among the most widely discussed provisions are the new deductions for qualified tips and qualified overtime compensation. Under new Section 224 of the Internal Revenue Code, workers in occupations that customarily and regularly received tips on or before December 31, 2024, may deduct up to $25,000 of qualified tips per year. The deduction phases out for taxpayers with modified adjusted gross income above $150,000 ($300,000 for joint filers) and is currently set to sunset on December 31, 2028.

The IRS issued final regulations in April 2026 that established a fixed, exhaustive list of tip-eligible occupations rather than an open-ended list. Notably, mandatory service charges and automatic gratuities do not qualify — a payment counts only if the customer truly has a choice, including the ability to leave no tip at all. The Treasury and IRS added or clarified several occupations, including floral designers, visual artists, gas pump attendants, app-based delivery drivers, rideshare drivers, and banquet staff.

A parallel deduction for qualified overtime compensation is also available. Both deductions are claimed on the new Schedule 1-A, Additional Deductions, which the IRS created specifically to handle the OBBBA’s new individual provisions. Employers should note that Form W-2 Box 14 has been split for 2026 into Box 14a for “Other” reporting and Box 14b to report the new Treasury Tipped Occupation Codes.

2. SALT Deduction: A Major Increase, Then a Step-Down

The state and local tax deduction cap — a perennial flashpoint since the 2017 TCJA limited it to $10,000 — has been raised substantially for 2026. The new limitation is $40,400 for most filers, or $20,200 for married individuals filing separately. The cap is reduced by 30% of modified AGI over $505,000 (or $252,500 for married filing separately), but cannot fall below $10,000 ($5,000 for MFS), and reverts to the original $10,000 threshold after 2029.

This change is particularly significant for homeowners in high-tax states such as California, New York, and New Jersey, where the previous $10,000 cap often forced itemizers to lose a substantial portion of their deduction. Taxpayers in the 37% bracket, however, face a new limitation: under the OBBBA, itemized deductions for those in the top bracket are treated as if they were in the 35% bracket for tax-benefit purposes.

3. Charitable Giving: New Floors and a Return of the Nonitemizer Deduction

Two changes affect charitable deductions in 2026. First, for taxpayers who itemize, the OBBBA imposes a floor: charitable contributions are deductible only to the extent that total contributions exceed 0.5% of adjusted gross income. This means that a taxpayer with $200,000 AGI can deduct only the amount of charitable giving above $1,000. Tax advisors are recommending “bunching” strategies — concentrating donations into alternating years — to minimize the impact of the floor.

Second, the COVID-era above-the-line charitable deduction for nonitemizers has been reinstated, with increased limits. For 2026, taxpayers who claim the standard deduction may deduct up to $1,000 in cash donations ($2,000 for joint filers). The definition of “cash donation” is broad and includes gifts made by debit or credit card, check, electronic bank transfer, online payment platform, and payroll deduction. Substantiation is required.

4. Digital Assets and Information Reporting

The IRS has also updated guidance on digital assets. In October 2026, the Treasury and IRS released Revenue Procedure 2026-20, which modifies the safe harbor for digital-asset trusts engaging in staking, replacing a previous nine-month grace period with a new six-month period. Separately, information reporting requirements for digital assets and third-party network transactions have been expanded, and the threshold for winnings subject to backup withholding and information reporting has increased.

5. What Has Not Changed — and What Expired

The OBBBA made permanent several provisions that were previously temporary, including the 20% qualified business income (QBI) deduction for pass-through entities and the casualty loss deduction, which is now expanded to include losses associated with a state-declared disaster. The individual tax rate brackets remain unchanged, with the top rate holding at 37%.

However, certain credits have expired and can no longer be claimed on 2026 returns. The eligibility rules for the premium tax credit have also changed, affecting both who can claim it and how much must be repaid if advance payments exceeded the allowed amount . Taxpayers should review their eligibility carefully before filing.

Planning Implications

With the 2026 filing season approaching, taxpayers and their advisors should focus on several action items: confirming whether their occupation qualifies for the tip deduction, evaluating whether “bunching” charitable contributions makes sense under the new 0.5% AGI floor, reassessing SALT deduction planning given the higher but phased-down cap, and ensuring that any digital-asset activity is properly reported under the updated rules.

The IRS has published a dedicated resource page for OBBBA provisions, and taxpayers claiming the new deductions should familiarize themselves with Schedule 1-A and its instructions . As always, consulting a qualified tax professional is recommended before making decisions based on the new law.