Five new or bigger deductions apply to 2026 returns, and one retirement rule turns a tax break into a tax bill for higher earners. Here is what each one is worth, who can use it, and how they combine, worked through with 2026 numbers.
The 2025 budget law (Public Law 119-21, signed July 4, 2025) added four temporary deductions for tax years 2025 through 2028, raised the cap on state and local tax deductions, and left in place a SECURE 2.0 rule that starts in 2026. The IRS set the 2026 brackets and standard deductions in Revenue Procedure 2025-32 (October 9, 2025). This guide compares the provisions side by side; each one has its own calculator for your numbers.
| Provision | 2025 | 2026 | How long |
|---|---|---|---|
| Standard deduction | $15,750 single / $31,500 joint | $16,100 single / $32,200 joint | Permanent |
| Qualified tips deduction | Up to $25,000 | Up to $25,000 | 2025-2028 |
| Qualified overtime deduction | Up to $12,500 ($25,000 joint) | Same | 2025-2028 |
| Senior deduction (65+) | $6,000 per person | $6,000 per person | 2025-2028 |
| Car loan interest deduction | Up to $10,000 | Up to $10,000 | 2025-2028 |
| SALT cap | $40,000; phase-down above $500,000 | $40,400; phase-down above $505,000 | Rises 1% a year to 2029; $10,000 from 2030 |
| Catch-up contributions | Pre-tax or Roth, employee’s choice | Must be Roth if 2025 FICA wages from the employer exceeded $150,000 | From 2026 |
| Dependent care FSA | $5,000 | $7,500 | Permanent |
| Child tax credit | $2,200 per child | $2,200 ($1,700 refundable) | Permanent, indexed for inflation |
The four Schedule 1-A deductions (tips, overtime, seniors, car loan interest) did not change in amount from 2025 to 2026. What is new for 2026 is reporting: employers must now show qualified tips and overtime separately on Form W-2, and lenders send statements of car loan interest, so most people will no longer have to reconstruct the numbers from pay stubs as they did for 2025.
All four Schedule 1-A deductions are taken after adjusted gross income, like the standard deduction. They reduce taxable income and federal income tax, but not AGI. That matters because many other things key off AGI or modified AGI: Medicare IRMAA surcharges, ACA premium credits, income-driven student loan payments, the earned income credit, and most state income taxes. A server who deducts $18,000 of tips still has the same AGI for all of those. By contrast, a pre-tax 401(k) or FSA contribution lowers AGI and therefore every one of them. The alternative minimum tax also adds the Schedule 1-A deductions back, so in an AMT year they save less; the AMT calculator shows whether that applies.
They also do nothing for payroll tax. Tips and overtime still carry 7.65% Social Security and Medicare tax (15.3% self-employment tax).
Each provision phases out differently, and the rounding rules differ too. The tips and overtime deductions shrink in full $1,000 steps; the car loan deduction counts any part of $1,000 as a full step; the senior deduction and SALT cap shrink continuously.
| Provision | Starts (single / joint) | Rate | Gone at (single / joint) | Calculator |
|---|---|---|---|---|
| Tips | $150,000 / $300,000 | $100 per full $1,000 over | $400,000 / $550,000 (from $25,000) | Tips calculator |
| Overtime | $150,000 / $300,000 | $100 per full $1,000 over | $275,000 / $550,000 (from the cap) | Overtime calculator |
| Senior | $75,000 / $150,000 | 6% of the excess, per person | $175,000 / $250,000 | Senior deduction calculator |
| Car loan interest | $100,000 / $200,000 | $200 per $1,000 or part over | $150,000 / $250,000 (from $10,000) | Car loan calculator |
| SALT cap ($40,400) | $505,000 (both) | 30% of the excess, floor $10,000 | Floor reached at about $606,333 | SALT calculator |
Income $52,000, of which $18,000 is reported tips. She paid $1,800 of interest on a loan for a new U.S.-assembled car bought in 2026. Both deductions are under their phase-outs, so she deducts $19,800 on Schedule 1-A on top of the $16,100 standard deduction. Federal income tax falls from $4,060 to $1,684, a saving of $2,376. Her payroll tax on the tips ($1,377) is unchanged.
AGI $110,000 from a pension, IRA withdrawals and the taxable part of Social Security. (The Social Security benefits tax calculator works out that taxable part with the IRS Publication 915 worksheet.) They paid $6,500 of state income tax, $9,000 of property tax and gave $4,000 to charity: $19,500 of itemized deductions, well below their $35,500 standard deduction ($32,200 plus $1,650 each for age). The higher SALT cap does not help them. The senior deduction does: both qualify for the full $6,000, since $110,000 is under the $150,000 joint threshold. Tax falls from $8,444 to $7,004, saving $1,440 (12% of $12,000).
Wages $480,000, state income tax $30,000, property tax $18,000, mortgage interest $20,000 and charity $5,000. Under the old $10,000 cap their itemized deductions were $35,000. For 2026, with modified AGI under $505,000, their cap is $40,400, so they deduct $40,400 of their $48,000 of SALT and itemize $65,400. Federal tax falls from $95,312 to $85,584, a saving of $9,728. One spouse is 55 and earned more than $150,000 of FICA wages in 2025 (the test for 2026 catch-ups), so her $8,000 catch-up must go into the 401(k) as Roth: that adds about $2,560 to this year’s tax (32% bracket) compared with a pre-tax catch-up. If their income rose to $560,000, the SALT cap would fall to $23,900, and every extra dollar of income in that range would cost about 1.3 times their bracket rate. Households in this range should also check the AMT, whose exemption from 2026 phases out at 50 cents per dollar above $1,000,000 of AMT income for joint filers ($500,000 single).
Do you receive tips in a job that traditionally gets them? If the tips are voluntary and reported, deduct up to $25,000, unless income is over $150,000 single or $300,000 joint, where it shrinks. Married couples must file jointly. Use the no tax on tips calculator; the tip credit calculator checks whether your cash wage plus tips met the minimum wage each week.
Are you paid time-and-a-half under federal overtime law? Only the premium half counts, one third of total overtime pay, and it is half of your FLSA regular rate, which includes promised bonuses and shift pay (the regular rate calculator figures it). State-law daily overtime and overtime for exempt salaried workers do not. Use the overtime deduction calculator.
Are you, or is your spouse, 65 by December 31? Each of you gets up to $6,000, itemizing or not, with a 6% phase-out above $75,000 ($150,000 joint). Use the senior deduction calculator.
Did you finance a new car after 2024? Check the VIN for U.S. final assembly; used cars, leases and unsecured personal loans do not count. Use the car loan interest deduction calculator.
Do your state and local taxes plus other itemized deductions beat the standard deduction? If you were stuck at the old $10,000 SALT cap, the 2026 cap of $40,400 may change the answer: run the SALT deduction calculator: many homeowners in high-tax states now itemize again.
Are you 50 or older with more than $150,000 of prior-year FICA wages? Your 2026 catch-up must be Roth. Check how much it costs this year with the Roth catch-up calculator.
The tips, overtime, senior and car loan deductions end after the 2028 tax year unless Congress extends them. The SALT cap rises 1% a year to 2029 ($40,804 for 2027, up from $40,400, by the statute’s formula) and falls back to $10,000 in 2030. The IRS normally publishes the next year’s brackets, standard deduction and FSA limits in October or November; as of October 22, 2026, the 2027 figures had not been released.
IRS, Fact Sheet FS-2025-03 on the new deductions (July 14, 2025; car loan section updated July 25, 2025). IRS, Revenue Procedure 2025-32 and IR-2025-103 (October 9, 2025). U.S. Code, 26 U.S.C. 151(d)(5), 163(h)(4), 164(b)(6)-(7), 224 and 225 as amended by Public Law 119-21 (accessed October 2026). IRS, Notice 2025-67 (November 2025) and IR-2025-91 on Roth catch-up regulations (September 15, 2025).
No. All four are claimed on Schedule 1-A and are allowed with the standard deduction or with itemized deductions.
No. They reduce taxable income after AGI, so they do not change AGI-based items such as IRMAA, ACA credits or income-driven student loan payments.
Yes, if you have both qualified tips and qualified overtime; each has its own cap and both phase out above $150,000 of modified AGI ($300,000 joint).
No. It is per return for single and joint filers, and $20,200 for married filing separately.
The tips, overtime, senior and car loan deductions apply to tax years 2025 through 2028. The higher SALT cap lasts through 2029.
No. It applies to catch-up contributions in 401(k), 403(b) and governmental 457(b) plans.