OBBBA Tax Law Changes 2026: How They Affect Your Taxes | ReturnMyTax

The One Big Beautiful Bill Act (OBBBA) introduces major tax changes in 2026 that could impact your finances. Key updates include a higher SALT cap, exemptions for tips and overtime, a senior bonus deduction, the elimination of the EV credit, and adjustments to the child tax credit. Here’s what you need to know.

Higher SALT Cap and What It Means for You

The OBBBA raises the state and local tax (SALT) deduction cap from $10,000 to $40,000. This is great news for taxpayers in high-tax states like California or New York. For example, if you paid $35,000 in state and local taxes in 2025, you could only deduct $10,000. In 2026, you’ll deduct the full $35,000, potentially lowering your taxable income by $25,000 more. This change could save high-earners thousands of dollars, especially those in expensive housing markets.

Tips, Overtime Exemptions, and Senior Deductions

The Act introduces new exemptions for tipped and overtime income. For instance, if you earn $5,000 in tips or $8,000 in overtime annually, that income will now be tax-free. This directly benefits workers in industries like hospitality or healthcare. Additionally, seniors aged 65+ will receive a $2,000 bonus deduction. If you’re retired and earning $50,000 a year, this deduction could reduce your taxable income to $48,000, lowering your tax bill significantly.

EV Credit Eliminated, Child Tax Credit Updates

The federal electric vehicle (EV) tax credit will be eliminated in 2026. If you’re planning to buy an EV, consider doing so before the deadline to claim the credit. On the flip side, the child tax credit is expanding. The credit will increase to $2,500 per child (up from $2,000) and include partial refundability for families earning over $2,500 annually. For example, a family with two children could receive $5,000 in credits, easing the financial burden of raising kids.

These changes are designed to simplify the tax code and provide targeted relief to specific groups. Whether you’re a homeowner, a worker, a senior, or a parent, understanding these updates can help you plan ahead and maximize your savings.

Full breakdown: https://returnmytax.com/obbba-tax-changes