The One Big Beautiful Bill Act (OBBBA) introduced several provisions that will affect 2026 income tax returns filed during the 2027 tax season. Although filing may feel far away, the decisions and documentation required begin now.
Key changes include:
– Qualified Tips Deduction: Eligible employees and self-employed individuals may deduct up to $25,000 of qualified tips, subject to income and occupational requirements.
– Qualified Overtime Deduction: Eligible taxpayers may deduct the qualifying overtime premium—generally the “half” portion of time-and-a-half—up to $12,500, or $25,000 for joint filers. Overtime remains subject to payroll taxes.
– Vehicle-loan interest deduction: Eligible taxpayers may deduct up to $10,000 of interest on loans for qualifying new, U.S.-assembled personal-use vehicles, subject to income limitations.
– Higher Standard Deductions for 2026: $16,100 for single filers, $24,150 for heads of household, and $32,200 for married couples filing jointly.
– Business Asset Deductions: Qualifying businesses may benefit from permanent 100% bonus depreciation. The Section 179 deduction increases to $2.56 million for eligible property placed in service during 2026.
– Child Tax Credit: The current OBBBA expanded the identification requirements. The qualifying child must have an SSN valid for employment. The taxpayer claiming the credit must also meet the new SSN requirement. For a joint return, eligibility may remain when at least one spouse has the required SSN.
– Earned Income Tax Credit: Taxpayers and qualifying children must have valid SSNs.
– Credit for Other Dependents: A dependent with an ITIN may still qualify for the nonrefundable credit of up to $500 if all other requirements are satisfied.
– Employer Tax Opportunities: The law expands the paid family and medical leave credit and increases the employer-provided childcare credit.
– For ITIN Holders: Cannot claim the deduction for qualified overtime compensation, nor qualified tips deduction.
These provisions contain eligibility rules, income limitations, phaseouts, and documentation requirements.