Major changes to the U.S. tax code under the One Big Beautiful Bill, signed into law July 4, 2025, will affect millions of Americans filing returns this year, with the IRS accepting returns starting January 26 and the April 15 deadline unchanged.
The legislation increases standard deductions, expands the state and local tax deduction cap, and introduces new deductions for tips, overtime, and auto loan interest. The changes may affect tax liability for taxpayers across multiple income levels.
Standard Deductions Rise Across All Filing Categories
Standard deductions increased significantly for the 2026 filing season. Single filers can now claim $15,750, up from previous levels. Head of household filers receive $23,625, while married couples filing jointly get $31,500.
The law adds targeted increases for seniors. Single filers 65 and older with adjusted income below $75,000 receive an additional $6,000 deduction. Married couples where both spouses are 65 or older with combined adjusted income below $150,000 get an extra $12,000.
These increases may affect whether taxpayers itemize deductions or take the standard deduction. The higher thresholds could push some itemizers back to the standard deduction.
SALT Deduction Cap Quadruples for High-Tax States
The state and local tax deduction cap jumped from $10,000 to $40,000 for tax years 2025 through 2029 for taxpayers with modified adjusted gross income under $500,000. The cap increases by 1% annually through 2029 before reverting to $10,000 in 2030.
The expanded cap is most relevant for taxpayers in high-tax states such as New York, New Jersey, and California. The change could prompt taxpayers who previously took the standard deduction to itemize instead, particularly those with substantial property tax bills.
To itemize, total deductions must exceed the standard deduction amount. Itemized deductions include medical and dental expenses exceeding 7.5% of adjusted gross income, mortgage interest on loans up to $750,000, and casualty or theft losses from federally declared disasters.
Child Tax Credit Increases to $2,200
The child tax credit rose from $2,000 to $2,200 per qualifying child. The credit applies regardless of whether taxpayers itemize or take the standard deduction.
To qualify, children must be under 17 at the end of the tax year, live with the taxpayer for more than half the year, and be claimed as dependents. The child cannot provide more than half their own support or file a joint return to claim credits.
The full credit amount phases out for single filers with annual income exceeding $200,000 and joint filers above $400,000. Partial credits may be available beyond these thresholds.
New Deductions for Tips and Overtime Through 2028
Workers earning tips can now deduct up to $25,000 in qualified tip income. Single filers must earn less than $150,000 annually to qualify, while married couples filing jointly must earn under $300,000. The deduction expires after tax year 2028.
Overtime deductions work differently. Only the premium portion of overtime pay qualifies—the amount exceeding the typical hourly rate. If a worker normally earns $10 per hour and receives $15 for overtime, only the additional $5 counts toward the deduction.
Single filers earning less than $150,000 can deduct up to $12,500 of overtime premium pay. Married joint filers under $300,000 can deduct up to $25,000. This provision also expires after 2028.
Self-employed individuals qualify for both the tip and overtime deductions. The IRS instructed taxpayers claiming these deductions to use Schedule 1-A when filing.
Auto Loan Interest Deduction for American-Made Vehicles
Taxpayers who financed American-made vehicles in 2025 can deduct up to $10,000 in auto loan interest. The deduction applies to cars, minivans, vans, SUVs, pickup trucks, and motorcycles that underwent final assembly in the United States and have a gross vehicle weight rating under 14,000 pounds.
Income limits restrict eligibility. Single filers must earn less than $100,000 annually, while joint filers must stay under $200,000. The deduction is available whether taxpayers itemize or take the standard deduction.
Claiming the deduction generally requires documentation of interest paid during 2025. Lenders typically provide year-end statements showing total interest charges.
Charitable Contribution Rules Change Starting 2026
Non-itemizers gain new charitable deduction options beginning with 2026 tax returns filed in 2027. Single filers can deduct up to $1,000 in cash donations to 501(c)(3) charities, while joint filers can deduct up to $2,000.
For itemizers, a new threshold applies. Charitable contributions must exceed 0.5% of adjusted gross income to be deductible. This change could affect taxpayers who previously itemized smaller charitable donations.
Broader Tax Law Changes Beyond Individual Returns
The One Big Beautiful Bill extends beyond individual tax provisions. The legislation makes permanent the seven individual tax rates created by the Tax Cuts and Jobs Act of 2017, which were scheduled to expire.
Business tax changes include permanent 100% bonus depreciation for equipment and domestic research and experimentation expensing. However, the law substantially restricts clean energy tax credits enacted under the Inflation Reduction Act, permanently eliminating the new and used Clean Vehicle Credit and repealing the Energy Efficiency Home Improvement Credit and Residential Clean Energy Credit.
The Opportunity Zones program became permanent with tightened eligibility criteria. Current designations expire December 31, 2026, with governors selecting new zones effective at the beginning of 2027. Rural zones receive enhanced benefits with a 30% step-up in basis compared to the standard 10%.
When to Expect Refunds
The IRS will distribute most tax refunds within 21 days of receiving and processing returns. The agency provides an online tool for checking refund status.
Tax professionals have emphasized the complexity of the changes. According to analysis from Holland & Hart, “most of these new tax changes start in 2026, with some affecting 2025 taxes filed in 2026 and some becoming effective later.” The firm noted that “more matters are still to be finalized, such as foreign-entity-of-concern restrictions on clean energy credits.”
The Tax Foundation published an interactive calculator titled ‘2026 Tax Calculator: How the One Big Beautiful Bill Act’s Tax Changes Will Affect You’ that estimates impacts based on user inputs.
The changes may affect filing decisions for some taxpayers. The increased standard deductions, expanded SALT cap, and new deductions for tips, overtime, and auto loan interest may change the amount of tax owed, depending on eligibility and how the provisions apply.
Source
What to know before you file your taxes this year | NBC New York