WHILE IT’S AN ANNUAL PHENOMENON, THE 2026 TAX SEASON THIS YEAR MIGHT BE IN THE FOREFRONT OF MORE PEOPLE’S MINDS MORE THAN EVER.
The year 2025 saw the largest changes in federal tax law since President Donald Trump’s initial tax cuts in 2017. The “One Big Beautiful Bill Act “extends the individual and business tax rates from the 2017 Tax Cuts and Jobs Act, and also includes a number of heavily advertised tax cuts and reductions.
Nicole Larson of Kinner & Company, said these changes will effect many of her clients and most taxpayers in general this season, although it might take some extra work from individuals to see higher refunds.
The headliners of the bill include no tax on tips or overtime income, and a senior citizen credit. For the 2025 fiscal year, employers are not required to do the calculations for employees.
While final tips income may be on the final pay stub or W-2, individuals will be largely responsible for calculating their own tipped income. This is becasue the law went into effect in July, rather than the beginning of the year. Sole proprieters also qualify for this deduction, but again will have to calculate tipped earnings themselves. The new law will have some kinks to work out, Larson said, in regards to mandatory tips. Mandatory tips on restaurant bills for large parties do not currently count as tip income, but this could change in future years. Most of the new tax provisions are set to expire in 2028, but that doesn’t mean there won’t be adjustments with each new season.
Overtime income earned can be found on final W-2 statements, Larson said, making overtime deductions simpler to file than tipped income.
However, overtime deductions are only available on the extra income earned above regular pay. If the overtime pay is, for example, one-and-a-half time, the tax deductable income is only the extra halftime pay.
The other new provision to gain media attention is one that requires clarification, Larson said. The senior benefit is an extra $6,000 subtraction from taxable income for individuals 65 and older.
“It’s not tied to social security whatsoever,” Larson explained. “It’s based on age and nothing else.”
The phase-out for the deduction also sits at a lower rate compared to the other new deductions, with individual phaseout starting at $75,000 and married filing jointly at $150,000.
For taxpayers who itemize their deductions, an increase to the State and Local Taxes (SALT) Cap could affect refunds. Previously, taxpayers could only deduct state income tax, and local property tax up to $10,000. The cap now sits at $40,000 and is set to expire in 2029.
“The standard deduction is $30,000, meaning now the itemized cap is higher than the standard,” Larson said. “It’s possible that some individuals might be better off and decide to itemize based on this change.”
Another big change this tax season involves refunds. To increase efficiency, federal refunds will now only be issued via direct debit. If you do not have a routing and account number filed, the IRS will have to request your bank account information, meaning your refund will be delayed up to six weeks. To prepare for this change, when filing this year all taxpayers should check to make sure their bank account information is up to date.
Other notable changes include a $200 increase to the Child Tax Credit, the phaseout of bonus depreciation for first-year assets was reversed. Families using the Dependent Care Flexible Spending program will also see an increase in the amount that can be withheld beginning in 2026. The maximal contribution of $5,000 (for married couples filing joinly) has not been changed since the program’s inception in 1986.
The new law now allows for up to $7,500 to be withheld from paychecks, increasing the level of non-taxable spending for childcare by 50%.
A reminder that individuals must file by the April 15 deadline.
