Top 7 Tax Changes for 2026 You Need to Know
The 2026 tax season brings significant updates that were signed into law on July 4, 2025. These changes aim to provide tax relief to individuals and families, especially retirees and those nearing retirement. Below are the top seven tax changes to keep in mind as you prepare to file your 2025 federal income tax return, due on April 15, 2026.
1. Higher Standard Deduction
The standard deduction, which most taxpayers claim instead of itemizing, has increased significantly for 2025 tax returns. This adjustment includes an extra 5% boost, courtesy of the OBBB, in addition to the usual inflation adjustment. For instance:
- Married couples filing jointly can now reduce their taxable income by an additional $1,500.
- Single filers and heads of household also benefit from higher deductions.
For retirees, there’s even more good news. If you’re 65 or older or blind, you qualify for a larger standard deduction. An additional $2,000 is available for single filers and heads of household, while each qualifying spouse on a joint return gets an extra $1,600. If you’re both 65-plus and blind, the deduction increases further to $4,000 for individuals and $3,200 for each qualifying spouse filing jointly .
2. New Deduction for Older Taxpayers
A new federal income tax deduction specifically for taxpayers aged 65 and older has been introduced. This deduction allows:
- Up to $6,000 for single filers.
- Up to $12,000 for married couples filing jointly, provided both spouses are 65 or older.
However, this deduction is income-dependent. If your Modified Adjusted Gross Income (MAGI) exceeds $75,000 (or $150,000 for joint filers), the deduction is reduced by 6 cents for every dollar above that threshold. Those with a MAGI of $175,000 or more ($250,000 for joint filers) are ineligible for this deduction .
3. Higher SALT Deduction Cap
The State and Local Tax (SALT) deduction limit has seen a substantial increase. Previously capped at $10,000, the limit has been raised to $40,000 for single filers and married couples filing jointly ($20,000 per person for married couples filing separately).
This change could make itemizing deductions more attractive, especially for taxpayers in high-tax states. However, the benefit diminishes for higher-income earners due to a phase-out for MAGI above $500,000 ($250,000 for married people filing separately). The cap will increase by 1% annually through 2029 before reverting to $10,000 in 2030 .
4. New Deduction for Car Loan Interest
If you financed the purchase of a new vehicle in 2025, you might be eligible to deduct up to $10,000 in interest paid on the loan. To qualify, the vehicle must meet specific criteria:
- It must be new (not used).
- Final assembly must have occurred in the U.S.
- The vehicle must weigh less than 14,000 pounds.
As with other deductions, this one is phased out for higher-income earners. The deduction decreases by $200 for every $1,000 of MAGI over $100,000 (or $200,000 for joint filers). The deduction completely phases out for those with a MAGI above $150,000 ($250,000 for joint filers).
This deduction is available only for the 2025–2028 tax years, so it’s wise to take advantage of it while it lasts , .
5. Increased 401(k) Catch-Up Contributions for Ages 60-63
The SECURE 2.0 Act introduced a significant change for individuals aged 60 to 63 who are looking to boost their retirement savings. For 2025, the basic contribution limit for workplace retirement accounts such as 401(k), 403(b), or 457 plans is $23,500. Workers aged 50 and older can contribute an additional $7,500 as a “catch-up” contribution, bringing the total to $31,000.
The new rule allows those aged 60 to 63 to make an even larger catch-up contribution of up to $11,250, raising the total to $34,750. This change is designed to help individuals nearing retirement maximize their savings.
Keep in mind, though, that contributions to traditional retirement accounts reduce your taxable income, whereas contributions to Roth accounts do not. However, withdrawals from Roth accounts during retirement are generally tax-free .
6. Expanded Child Tax Credit
Parents will be pleased to know that the Child Tax Credit has been expanded under the OBBB. For the 2025 tax year:
- The credit increases to $3,600 per child under the age of 6.
- For children aged 6 through 17, the credit rises to $3,000 per child.
The income thresholds for the credit remain the same as in previous years, with phase-outs starting at $200,000 for single filers and $400,000 for married couples filing jointly. This change aims to provide additional financial support to families with young children .
7. New Deduction for Overtime Pay
For those still working, the OBBB introduces a new deduction for overtime pay. This allows workers to deduct up to $12,500 (or up to $25,000 for joint filers) in overtime earnings from their taxable income.
However, similar to other deductions, this benefit is phased out for higher-income earners. The deduction is reduced by $100 for every $1,000 of MAGI over $150,000 ($300,000 for joint filers) and disappears entirely for MAGI above $275,000 ($550,000 for joint filers).
This deduction is also available to both itemizers and those claiming the standard deduction, but it’s only in effect through the 2028 tax year , .
Additional Tax Tips for 2026
Here are some additional tips to help you navigate the 2026 tax season:
- Maximize Health Savings Accounts (HSAs): Contribution limits for HSAs have increased for 2025, allowing individuals and families to save more tax-free dollars for medical expenses.
- Charitable Contributions: If you’re 70½ or older, you can make qualified charitable distributions (QCDs) from your IRA, reducing your taxable income while supporting causes you care about.
- Energy-Efficient Home Improvements: The OBBB has extended and expanded tax credits for energy-efficient home improvements, such as solar panels and energy-efficient windows. Be sure to check if your upgrades qualify for these credits.
The 2026 tax season brings a mix of new opportunities and challenges, especially for retirees and those nearing retirement. By understanding these changes and planning accordingly, you can take full advantage of the tax benefits available to you.
As always, it’s essential to consult a tax professional or financial advisor to ensure you’re making the most of these opportunities while staying compliant with tax laws. Remember, every dollar saved is a step closer to financial security in retirement.
Sources for Contextual Facts:
- IRS: Tax Inflation Adjustments for 2026
- TurboTax: One Big Beautiful Bill Act Tax Law Changes
- Tax Foundation: 2026 Tax Brackets and Federal Income Tax Rates
- Axios: 2026 IRS Tax Bracket Changes