The Internal Revenue Service (IRS) has announced major revisions to the U.S. tax code following the passage of the One, Big, Beautiful Bill Act (OBBB), signed into law on July 4, 2025. The agency has issued new guidance for individuals, families, and businesses, with the changes taking effect immediately for the 2026 tax year.
According to the IRS, these updates are designed to expand access to tax relief across multiple groups, including working Americans, seniors, and employers. They mark one of the most comprehensive overhauls of tax deductions in recent history, driven by efforts to encourage investment, support families, and ease financial burdens tied to daily work and living expenses.
Key Deduction Changes Include Overtime, Car Loans, and Tip Income
Among the most significant provisions is a new deduction for tip income, allowing employees and self-employed workers in IRS-defined tipped occupations to deduct up to $25,000 annually between 2025 and 2028. This benefit phases out for individual taxpayers earning more than $150,000 or couples earning above $300,000, as detailed in an official IRS fact sheet.
Overtime pay is also addressed. Workers may now deduct the portion of their overtime earnings that exceeds their base pay, up to $12,500 per year, or $25,000 for joint filers. The eligibility criteria remain consistent with the tip deduction’s income limits and apply to both standard deduction users and itemizers.
In a notable shift toward vehicle-related expenses, taxpayers can now deduct up to $10,000 per year in interest paid on new auto loans, provided the vehicles were manufactured in the U.S., weigh under 14,000 pounds, and the loans originated after December 31, 2024. According to guidance issued by the U.S. Treasury Department, this deduction is limited to personal-use vehicles only and cannot be claimed for business use.
The IRS has confirmed that eligibility, documentation, and filing requirements for these deductions will be clarified in additional guidance to be released later this year.
Standard Deduction Increases and New Benefits for Seniors and Businesses
The IRS has increased the standard deduction amounts across all major filing categories. For tax year 2026, married couples filing jointly may now claim $32,200, while individuals and married people filing separately may deduct $16,100. Heads of household can deduct $24,150. These amounts reflect a significant bump from previous levels and apply uniformly across income levels.
Seniors are also set to receive enhanced tax relief. From 2025 through 2028, taxpayers aged 65 and older will be able to claim an additional $6,000 deduction, or $12,000 for eligible couples. This extra deduction begins to phase out for incomes above $75,000 for individuals and $150,000 for joint filers, according to the IRS.
In the business sector, the new law introduces permanent 100 percent bonus depreciation. Taxpayers who acquire eligible depreciable property after January 19, 2025, may now expense the full cost in the first year rather than depreciating over time. According to the IRS, this includes qualified sound recording productions newly recognized under the OBBB Act.
The IRS also outlines optional elections under the new bonus depreciation framework, allowing for deductions of 40 percent or 60 percent in certain cases, depending on the property type and use. Final rules are expected to include more examples and clarifications to support compliance. While implementation of the OBBB continues, interim notices and future updates are anticipated to further clarify reporting obligations for taxpayers, employers, and lenders.
