Individual Tax Changes Under the OBBB: What You Need to Know for 2026
- Kika Rogers
- Jan 16
- 5 min read
The One Big Beautiful Bill Act (OBBB) represents one of the most significant overhauls to individual taxation in recent years. With provisions taking effect throughout 2025 and 2026, these changes affect standard deductions, introduce entirely new deductions, expand child tax credits, and modify several long-standing tax provisions.
Whether you are a small business owner, a working family, or a retiree, understanding these changes now could translate into meaningful tax savings when you file your 2026 return. Here is what you need to know.
Standard Deduction Increases
The OBBB permanently increased the standard deduction and indexed it to inflation. For the 2026 tax year, standard deductions are set at the following amounts:
Filing Status | 2026 Standard Deduction |
Single | $16,100 |
Married Filing Jointly | $32,200 |
Head of Household | $24,150 |
These amounts will continue to adjust annually based on inflation, providing ongoing relief for taxpayers who do not itemize their deductions.
Individual Tax Rates Made Permanent
The seven individual income tax brackets established under the Tax Cuts and Jobs Act (TCJA) are now permanent under the OBBB. The rates remain at:
10%
12%
22%
24%
32%
35%
37%
This provides long-term certainty for tax planning purposes. Without the OBBB, these rates were scheduled to revert to pre-TCJA levels after 2025, which would have resulted in higher tax bills for most filers.
Child Tax Credit Expansion
The OBBB significantly enhances the Child Tax Credit (CTC), providing greater support for families with qualifying children. Key changes include:
Increased Credit Amounts: The maximum child tax credit increases to $2,500 per qualifying child under age 17. This represents a $500 increase from previous levels.
Refundability: The refundable portion of the credit has been expanded, allowing lower-income families to receive more of the credit even if they owe little or no federal income tax.
Phase-Out Thresholds: The credit begins to phase out for single filers with modified adjusted gross income (MAGI) exceeding $200,000 and for married couples filing jointly with MAGI exceeding $400,000. The credit reduces by $50 for each $1,000 of income above these thresholds.
Effective Date: These enhanced child tax credit provisions take effect for tax years beginning after December 31, 2025.
Families with multiple children could see substantial savings under these expanded provisions.
New Deductions Introduced
The OBBB creates several entirely new deduction opportunities that did not exist under prior law. Each comes with specific limits and phase-out rules.
Tip Income Deduction
Workers who receive tip income can now deduct up to $25,000 in tips annually. This provision benefits restaurant workers, bartenders, hospitality staff, and others in service industries who rely heavily on gratuities.
Effective Date: Tax years beginning in 2025
Senior Citizen Deduction
Individuals age 65 and older can claim an additional deduction of up to $6,000. This deduction phases out based on modified adjusted gross income:
Filing Status | Phase-Out Begins |
Single | $75,000 MAGI |
Married Filing Jointly | $150,000 MAGI |
Effective Date: Tax years beginning in 2025
Overtime Pay Deduction
Qualifying overtime compensation is now deductible up to the following limits:
Filing Status | Maximum Deduction |
Single | $12,500 |
Married Filing Jointly | $25,000 |
This deduction is subject to income-based phase-outs and applies to overtime hours worked as defined under the Fair Labor Standards Act.
Effective Date: Tax years beginning in 2025
Auto Loan Interest Deduction
Taxpayers can deduct up to $10,000 annually in interest paid on loans for new personal-use vehicles. Key restrictions include:
The vehicle must be new (not used)
The vehicle must be for personal use
Income-based phase-outs apply
The provision sunsets after 2028
Effective Date: Tax years beginning in 2025 through 2028
SALT Deduction Cap Increase
The state and local tax (SALT) deduction cap has been raised significantly under the OBBB.
Year | SALT Cap |
2025-2029 | $40,000 (with 1% annual increase) |
2030 and after | Reverts to $10,000 |
For taxpayers with modified adjusted gross income exceeding $500,000, the cap gradually reduces by 30% until reaching the $10,000 floor.
This change provides meaningful relief for taxpayers in high-tax states who itemize their deductions. The four-fold increase from the previous $10,000 cap could result in thousands of dollars in additional deductions for qualifying taxpayers.
Charitable Giving for Standard Deduction Filers
Beginning in 2026, taxpayers who claim the standard deduction can also claim a charitable deduction for cash contributions. This "above-the-line" deduction is capped at:
Filing Status | Maximum Deduction |
Single | $1,000 |
Married Filing Jointly | $2,000 |
Important: This deduction applies only to cash contributions, not property donations. Taxpayers must maintain proper documentation of their charitable gifts.
Provisions Eliminated or Modified
The OBBB also permanently eliminates or modifies several provisions:
Personal Exemptions: Personal exemptions for individuals, spouses, and dependents are permanently eliminated. These exemptions were temporarily suspended under the TCJA and are now gone for good.
Miscellaneous Itemized Deductions: The temporary suspension of miscellaneous itemized deductions under the TCJA becomes permanent starting in 2026. This includes unreimbursed employee expenses, tax preparation fees, and investment advisory fees.
Foreign Money Transfer Tax: A new 1% excise tax applies to foreign money transfers beginning in 2026. This affects transfers such as money orders, wire transfers, and cashier's checks sent abroad.
Premium Tax Credit Changes: Starting in 2026, the law expands situations requiring repayment of excess advance premium tax credits. It also eliminates eligibility for individuals who enroll in marketplace coverage during a special enrollment period due solely to household income changes.
Who Benefits Most
The OBBB tax changes provide the greatest benefit to:
Families with children through the expanded Child Tax Credit
Service industry workers through the tip income deduction
Seniors on fixed incomes through the new $6,000 deduction
Hourly workers who earn overtime through the new overtime deduction
Taxpayers in high-tax states through the increased SALT cap
New car buyers through the auto loan interest deduction
Action Steps
Review your withholding. The new deductions and credits may affect your tax liability. Consider submitting an updated W-4 to your employer if appropriate.
Track qualifying expenses. If you earn tips, work overtime, or pay interest on a new vehicle loan, maintain detailed records to support these new deductions.
Document charitable contributions. If you plan to claim the new charitable deduction while taking the standard deduction, keep receipts for all cash donations.
Evaluate itemizing versus standard deduction. With the increased SALT cap, some taxpayers who previously took the standard deduction may now benefit from itemizing.
Consult a tax professional. The OBBB increases 1040 return complexity by an estimated 10-15% for the 2026 tax season. Working with a qualified professional can help ensure you claim all available benefits.
If you have questions about how these changes affect your specific situation, contact our team for personalized guidance. You can also learn more about our tax planning and preparation services.
This information is provided for general educational purposes and does not constitute tax, legal, or financial advice. Tax laws are subject to change, and individual circumstances vary. Consult a qualified tax professional before making decisions based on this information.
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