SUMMARY OF CHANGES
This law makes permanent many provisions of the Tax Cuts and Jobs Act (TCJA), including existing tax brackets and the deduction for Qualified Business Income (QBI).
Here are some highlights of changes:
Deduction for Qualified Business Income (QBI). Increases the limit on State and Local Tax (SALT) deductions. New deductions for tips and overtime, senior deduction for those over 65 In lieu of making social security non-taxable.
Eliminates clean energy credits including EV credits and residential energy credits.
Increases Child Tax Credit to and Child Dependent Care Credit.
Gives a $1000 credit for newborns to add to a government-funded investment account.
New above-the-line deduction for those who do not itemize for "cash" contributions.
Increases Estate and Gift Tax Exemption.
Below is more in-depth detail for the above changes and more:
FEDERAL TAX RATES
Federal ordinary income tax rates for 2026 range from 10% to 37% across seven brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%)
STANDARD DEDUCTIONS
For single - $16,100, married filing joint - 32,200, head-of-household - $24,150. Additional deductions for those over 65 and/or blind.
QUALIFIED BUSINESS INCOME DEDUCTION (QBI)
Self-employed taxpayers or those with pass-through income from partnerships or corporations, are guaranteed a minimum deduction of $400 (or the standard 20% calculation if it is higher). You must have at least $1,000 in active qualified business income and you must materially participate.
MEDICAID WORK REQUIREMENTS:
These new requirements will begin to take effect starting January 1, 2027. The law affects who is eligible to receive Medicaid and Medicare benefits or access Affordable Care Act plans.
Introduces work requirements for certain Medicaid recipients, requiring a minimum of 80 hours of monthly work, school, or community engagement for able-bodied adults aged 19-64. Exemption applies to those who are medically frail or have a serious health condition/disability that impairs their ability to work. Other exemptions apply.
Requires biannual, instead of annual, eligibility checks for childless adults on Medicaid.
SOCIAL SECURITY TAX REDUCTION:
In lieu of eliminating taxes on social security, there will be an elder deduction for those age 65 and up, offering an additional $6,000 in deductions for single filers and $12,000 for married couples. These have income limit restrictions. This reduces taxable income, not taxes. The new deduction can be used by seniors with any income, not just Social Security benefits.
The deduction is only in effect for from 2025 through 2028.
EARNED INCOME CREDIT:
Now married filing separate can claim it if they’ve lived apart for the last 6 months of the year or are legally separated and didn’t live with spouse during the year.
CHILD TAX CREDIT:
For children under 17, $2,200 instead of $2000.The higher refundable portion of up to $1,700 per child got extended. But individuals with incomes above $200,000, or $400,000 for jointly filing couples, cannot receive the credit.
DEPENDENT CHILD CARE CREDIT:
For 2026 the credit for child care ranges from 20% to 50% depending on your adjusted gross income. You can claim expenses up to $3,000 for one child, and a maximum of $6,000 for two or more children. You must have earned income to qualify. The maximum credit is up to $1,500 for one (50% of $3,000) and up to $3,000 (50% of $6,000) for two or more dependents.
NEWBORN CREDIT:
Starting in 2025, American newborns will receive a $1,000 government-funded investment account. Parents of newborns will receive $1,000 to open an investment account composed of stock, with annual contributions of up to $5,000 that can include $2,500 from an employer.
SALT TAX (STATE AN LOCAL TAX DEDUCTIONS):
Sets the deduction for state and local taxes at $40,000, ($20,000 for married filing separate) which is four times the maximum available under the 2017 law. However, that deduction is lowered for taxpayers whose income is above $500,000, with those at $600,000 or above limited to the previous deduction cap of $10,000.
ABOVE THE LINE CONTRIBUTION DEDUCTION:
Beginning in 2026, you can claim an above-the-line deduction (even if you don’t itemize) for CASH donations to public charities, up to $1,000 for singles and $2,000 for those married filing joint. Substantiation must be available.
AUTO LOAN INTEREST DEDUCTION:
This deduction is above-the-line also. You can deduct up to $10,000 in personal interest per year. (Business interest can always be deducted.)
The vehicle must be new, purchased with a loan originated after December 31, 2024, and its final assembly point must be in the US. The vehicle must be for personal use, not for business or commercial. The loan must be secured by a first lien on the vehicle and may not be from a family member.
The deduction phases out for individuals with a modified adjusted gross income (MAGI) over $100,000 ($200,000 for joint filers). Interest on leased vehicles or loans taken out to buy used cars is not eligible for this deduction. Takes effect January 1, 2025, and is scheduled to expire on December 31, 2028.
MILEAGE RATES:
Business mileage will go up to 72.5 cents a mile from 1/1/26 - 6/30/26, and 76 cents from 7/1/26 - 12/31/26. Medical 23.5 cents. Charity still at 14 cents.
EDUCATION:
The educator's credit goes up to $350.
Student loan interest limited for singles making over $85,000 and married filing joint for income over $175,000.
TAX ON OVERTIME:
Workers can deduct up to $12,500 (for those filing single, head-of-household or married filing separate) in qualified overtime compensation, and $25,000 for joint filers from their federal income taxes.
Only the "premium" portion of overtime pay (the amount above the standard hourly rate) required by the Fair Labor Standards Act (FLSA) is eligible for the deduction.
This deduction phases out for individuals with modified adjusted gross income over $150,000 ($300,000 for joint filers). Federal payroll taxes (Social Security and Medicare) and state and local taxes (if applicable) still apply to overtime pay. Only Federal tax withholding is eliminated.
TIP INCOME DEDUCTION:
Eligible individuals can deduct up to $25,000 in qualified tip income from their federal income taxes.
The deduction applies to tips in occupations that "customarily and regularly received tips" before 2025. Tips must be voluntary and reported on tax forms like W-2s, and 1099s.
The deduction phases out for individuals with modified adjusted gross income over $150,000 ($300,000 for joint filers). Federal payroll taxes (Social Security and Medicare) and state and local income taxes (if applicable) still apply to tip income.
Both deductions on tips and overtime are temporary and are set to expire after the 2028 tax year.
CAPITAL GAINS TAX:
Long-term capital gains (including sale of your personal residence) are taxed at 0%, 15%, or 20% depending on your total taxable income and filing status. Assets held for one year or less are taxed as ordinary income.
ESTATE AND GIFT TAX DEDUCTIONS:
Any taxable estate value exceeding the $15 million threshold is subject to a federal estate tax rate of up to 40% .
The amount you can gift to any individual during the year without it counting against your lifetime exemption is $19,000 per recipient (or $38,000 for married couples). No Gift Tax Return is required if gifts are made within those limits.
GAMBLING LOSS DEDUCTION:
You can only deduct up to 90% of your qualified gambling losses against your gambling winnings but only if you itemize your deductions.
MORTGAGE INSURANCE PREMIUMS:
PMI will be deductible once again starting 2026.
1099-NEC ISSUE REQUIREMENT:
For 2026 -not required unless one makes $2,000 or more.
1099-K ISSUE REQUIREMENT:
Only required if both thresholds are met: more than $20,000 in aggregate payments and more than 200 separate transactions.