7 Big Changes for the 2026 Tax Season

The SALT deduction was capped at $10,000 from 2018 to 2024, but the limit for the 2025 tax year jumps to $40,000 for single filers and married couples filing jointly ($20,000 per person for married couples filing separately). The limit will increase 1 percent each year through 2029, then drop back to $10,000 in 2030.

The higher cap makes it easier to fully deduct your state and local taxes, and it could make itemizing a better option than the standard deduction for some people. But there’s a catch: Higher-income people might not be able to use the increased limit.

For the 2025 tax year, the $40,000 cap is reduced by 30 cents for every dollar of MAGI over $500,000 ($250,000 for married people filing separately), to as low as $10,000. Also, the MAGI threshold limits will increase by 1 percent each year until 2030.

4. New deduction for car loan interest

If you took out a loan in 2025 to buy a new (not used) car, minivan, van, SUV, pickup truck or motorcycle, you might be able to deduct up to $10,000 of interest paid during the year.

The caveat? To qualify, the vehicle’s final assembly must have taken place in the U.S., and it must weigh less than 14,000 pounds. (To find out where your car was assembled, enter the vehicle identification number into the National Highway Traffic Safety Administration’s VIN Decoder. The assembly location will be listed in the “Other Information” section.)

The deduction is gradually phased out based on your income. Once your MAGI surpasses $100,000 ($200,000 for joint filers), the deduction is reduced by $200 for every $1,000 (or portion thereof) over the applicable threshold. You’re no longer eligible for the deduction if you paid $10,000 in interest for the year and your MAGI is $150,000 or more ($250,000 or more for joint filers). 

As with the new deduction for people 65 and older, you can claim the car loan interest deduction whether or not you itemize, but the deduction is available only for the 2025 through 2028 tax years.

Your lender is required to provide a statement to you by January 31, 2026, indicating the total amount of interest you paid on your auto loan in 2025.

5. Larger 401(k) catch-up contributions if you’re age 60 to 63

You can only contribute so much each year to a workplace retirement account such as a 401(k), 403(b) or 457 plan. For 2025, the basic contribution limit for such plans is $23,500. Workers 50 and older can add another $7,500 — a “catch-up” contribution — for a maximum of $31,000.

Here’s the big change that starts this tax year: Savers who are ages 60 to 63 at the end of the year can make an even larger catch-up contribution of up to $11,250, for a total of $34,750. The bigger catch-up for this group was part of the SECURE 2.0 Act, a 2022 federal law designed to promote saving for retirement.

While this “supersized” limit can help boost your retirement savings as you get closer to retirement, it can also affect your tax bill if you have a traditional 401(k), 403(b) or 457 plan. That’s because any money taken out of your paycheck and put in a traditional 401(k) or similar plan isn’t included in your taxable income.

Contributions to a Roth 401(k), 403(b) or 457 plan are included in your taxable income. But unlike withdrawals from a traditional account, you generally don’t have to pay taxes when you take money out of a Roth account in retirement.

6. New deduction for tipped workers

If you haven’t left the workforce yet, or you’re picking up a few work hours in retirement to earn a little extra money, you might benefit from a new OBBB deduction for cash tips received on the job.

Whether you qualify depends on your occupation and employer. You must have received tips while performing a job that “customarily and regularly” involved tipping before 2025, such as a waiter, bartender, hairdresser, ride-share driver or hotel maid. The Treasury Department’s website has a full list of qualifying jobs.

Even if your job is on that list, you can’t claim the deduction if you performed it for a “specified service trade or business” (SSTB). Many types of businesses are treated as SSTBs, including those in these fields:

• Health
• Law
• Accounting
• Performing arts
• Consulting
• Athletics
• Financial services

So, for example, a bartender at a restaurant may qualify for the deduction, while someone who bartends at a theater may not.

Assuming you have a qualifying job and don’t work for an STTB, you may be able to deduct up to $25,000 of cash tips you received in 2025. The deduction is gradually phased out if your MAGI exceeds $150,000 ($300,000 for joint filers), dropping by $100 for every $1,000 of MAGI over the threshold. The deduction shrinks to $0 if your MAGI is greater than $400,000 ($550,000 on a joint return).

You can claim the tip deduction whether or not you itemize on your return. (If you’re married, you must file a joint return to claim it.)

The deduction is available for tax years 2025 through 2028.

7. New deduction for overtime pay

The OBBB created another new tax break for people who are still working — the overtime deduction.

It allows workers to deduct up to $12,500 (or up to $25,000 for joint filers) in overtime compensation from their taxable income. But, as with the deduction for tipped workers, the overtime deduction is reduced by $100 for every $1,000 of MAGI over $150,000 ($300,000 for joint returns), eventually dropping to $0 if your MAGI is $275,000 or greater ($550,000 or greater for joint filers).

Like the deduction for tipped workers, the overtime deduction is available to both itemizers and taxpayers who claim the standard deduction; married people must file jointly to qualify; and it’s offered only through the 2028 tax year.