With the new year comes new opportunities for tax planning. The One Big Beautiful Bill Act was signed into law on July 4, 2025, making this the first full year the new tax provisions are in effect. Several key opportunities may save you money. The difference comes down to planning, and with these new tax provisions in place, understanding them will be critical to minimizing your tax bill in 2026. In the following below I will highlight some key new tax topics for individuals to be aware of in 2026.
Standard and Itemized Deductions
For tax year 2026, the standard deduction has increased to $32,200 for married couples filing jointly and $16,100 for single filers. For residents of high-tax states, including those with significant property and income taxes, taxpayers can now deduct up to $40,000 in state and local taxes (SALT) when itemizing. This is a significant increase from prior years, when the SALT deduction was capped at just $10,000. While this higher deduction was also available in 2025, it remains an important consideration for higher-income earners in states like New York, New Jersey, and California as they plan for 2026. Despite these changes, most taxpayers will continue to take the standard deduction, as rising limits make itemizing increasingly challenging. There is also a phase out for taxpayers making over $505,000.
Seniors now have an additional deduction available for tax years 2025 through 2028 for individuals age 65 and older. This new deduction is in addition to the traditional Age 65+ deduction. Eligible individuals can claim up to $6,000 each, meaning a married couple could potentially claim $12,000 if both qualify. One important consideration is that income phaseouts apply, so you may not be eligible for the full amount, but you can still claim a portion depending on your income level.
No Tax on Tips & Overtime
Effective for tax years 2025 through 2028, individuals may deduct qualified tips and overtime pay from their wages, tips, and other compensation. To support this change, the IRS will update the Form W-2 to include two new box 12 codes: TP for qualified tips and TT for qualified overtime pay. However, these W-2 changes will not take effect until tax year 2026. As a result, there are no changes to the official W-2 format for 2025. Beginning in tax year 2026, with IRS guidance in place, employers will identify and report qualifying tips and overtime wages in separate W-2 boxes in a standardized manner. These deductions are subject to gross income phaseouts, beginning at $150,000 for single filers and $300,000 for joint filers.
For qualified tips, the maximum annual deduction is $25,000 per tax return, not per individual. This means that if you and your spouse both receive qualified tips and file a joint return, you can deduct only a total of $25,000 between the two of you.
For qualified overtime, the maximum annual deduction is $12,500 for single filers and $25,000 for joint filers. Only the portion of overtime pay that exceeds the regular rate of pay is deductible. For example, if you are paid time-and-a-half, only the extra half of your pay qualifies for the deduction.
Employer Plan Retirement contributions
Beginning in 2026, certain higher-earning employees will be required to make catch-up contributions on a Roth (after-tax) basis rather than pre-tax to a traditional 401(k) or 403(b). The standard contribution limit for employees under age 50 will be $24,500. Employees aged 50-59 are eligible for an additional $8,000 catch-up contribution, while those aged 60-63 qualify for a “super” catch-up of $11,250, added on top of the $24,500 standard limit. The key change is that for employees with FICA wages over $150,000, any catch-up contributions above the standard $24,500 must be designated as Roth contributions. These employees can still deduct the $24,500 from taxable wages, but any amount above that is contributed as an employer Roth contribution, meaning it is taxed before being deposited.
When planning a strategy around this change to catch-up contributions, your marginal tax rate will be an important consideration. Even though the catch-up contributions must be made on a Roth basis, they still provide tax-free growth and tax-free withdrawals in retirement. Roth dollars are particularly valuable for required minimum distribution (RMD) planning once you reach RMD age. If you are in a very high tax bracket; 35% or 37%, plus any state income tax, the immediate tax on additional Roth catch-up contributions may outweigh the benefits. In that case, it may make more sense to stick with the standard pre-tax contribution limit now and wait to do Roth conversions later, when your income is lower and your tax rate may be reduced after you stop working.
Trump Accounts
Parents, guardians, or other authorized adults can establish a Trump account for an eligible child by filing IRS election form 4547. Each child is limited to only one Trump account. Once the account is set up, the adult manages it until the child turns 18. An eligible child is any U.S. child under age 18 with a valid Social Security number. Children born between January 1, 2025, and December 31, 2028 are eligible for an initial $1,000 government contribution. Children under 18 born before 2025 can still have an account opened, but they will not receive the government contribution.
Trump accounts cannot be funded before July 4, 2026, and contributions from individuals and employers are allowed up to $5,000 per year. Employers may contribute up to $2,500 per year, which can be excluded from the employee’s taxable income, but this amount counts toward the $5,000 annual limit. It is important to check with your employer, as contributions could be payroll-elected or employer-funded. Contributions made directly from parents or family members are made with after-tax dollars and do not reduce taxable income. Although the rules for these accounts are still being finalized, they may be used alongside a 529 plan as a complementary savings option, giving families another tool to help save for a child’s future.
Whether you are preparing for the specific tax changes taking effect in 2026 or focusing on tax planning in general, it is important to take a proactive look at your situation each year. As circumstances change, whether due to updates in tax laws or personal life events, reviewing your overall tax strategy annually is essential. Having a clear plan in place can make a meaningful difference in reducing your tax burden each year. Working with a qualified financial advisor can help ensure a sound and effective strategy is in place year after year.
Sources:
https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions