What the OBBBA Actually Changed for Your 2026 Taxes

What the OBBBA Actually Changed for Your 2026 Taxes

I was sitting in my home office last Tuesday, Cooper snoring at my feet, when a client emailed me panicking about the OBBBA. "Michael, is it true my taxes are going up?" she wrote. I had to laugh—not because her fear was funny, but because I have seen this exact panic every time Congress touches the tax code.

Look, I have spent twelve years inside the IRS as a Revenue Agent, and another eight running my CPA practice here in Austin. I have watched tax reform come and go. The Tax Cuts and Jobs Act (TCJA) of 2017 shook things up. Now the Omnibus Budget and Business Benefits Act (OBBBA) of late 2025 has made some significant adjustments for the 2026 tax year. Let me break down what actually matters for your return.

The OBBBA did not rewrite the entire code. That is the first thing to understand. What it did was extend, modify, and in some cases permanently codify provisions that were set to expire. Here is what I am seeing in my practice daily.

The Brackets Shifted—Slightly

The 2026 federal income tax brackets saw modest inflation adjustments. For single filers, the 10% bracket now tops out at $12,400 (up from about $11,600 in 2025). The 37% bracket kicks in at $640,600 for singles and $768,700 for married filing jointly. These are not dramatic jumps, but if you are right on the edge of a bracket, a few hundred dollars in additional income can push you into the next tier.

I had a client last month—a software contractor here in Austin—who was furious when I showed him the math. He had picked up an extra $3,000 project in December, thinking it was "just 22% federal tax." Nope. That project pushed him from the 24% bracket into 32%. He owed an extra $960 on that income alone. "Why did not anyone tell me?" he asked. Well, I am telling you now.

The OBBBA made permanent the TCJA ordinary income tax structure and added a special inflation adjustment for the bottom two brackets—10% and 12%—giving them a 4% inflation adjustment versus 2.3% for the higher brackets. This is designed to help lower-income taxpayers, and honestly, it is one of the better provisions in the bill.

Standard Deduction Holds Strong

The standard deduction for 2026 remains robust: $15,550 for singles, $31,100 for married filing jointly. About 90% of taxpayers take the standard deduction now, and that trend is not reversing. The OBBBA made no changes to itemized deduction rules, so if you were not itemizing before, you probably still should not bother.

QBI Deduction Becomes Permanent

This is big. Section 199A, the 20% qualified business income deduction, was set to expire after 2025. The OBBBA made it permanent. If you run a pass-through business—S-Corp, partnership, sole proprietorship—this is massive. I have a restaurant owner client who saves roughly $14,000 annually on this deduction alone. "Permanent" means you can actually plan around it, not just hope Congress extends it again.

The phase-in limits start at $201,775 for single filers and $403,500 for joint filers in 2026. The OBBBA actually expanded the phase-in range from $50,000 to $75,000 for singles and from $100,000 to $150,000 for joint filers, which means fewer people get caught in the limitation zone.

Child Tax Credit Adjustments

The CTC for 2026 is $2,200 per qualifying child under 17. That is up from $2,000, but far below the temporary $3,600 we saw during the pandemic years. For my family—Jennifer and I have Olivia and Ethan—that is $4,400 total. It helps, but it is not life-changing. The refundable portion stays at $1,700. The phase-out begins at $200,000 for single filers and $400,000 for married filing jointly, same as before.

Retirement Contribution Limits

401(k) limits for 2026 are $24,500, up from $23,500. IRA limits increased to $7,500 ($8,600 if you are 50+ thanks to the $1,100 catch-up). SEP contributions max out at $70,000. For those aged 60-63, there is a special super catch-up of $11,250. These inflation adjustments are automatic, not OBBBA-specific, but worth noting if you are trying to reduce your AGI.

SALT Cap Changes—Sort Of

Here is where it gets interesting. The OBBBA raised the SALT deduction cap to $40,400 for married couples with income at or below $500,000, gradually phasing down to the old $10,000 cap for higher earners. For most middle-class families in high-tax states, this is a meaningful improvement. I know a client who moved from San Francisco to Austin partly because of the old SALT cap. He told me he saved $28,000 in state taxes his first year here.

Crypto Reporting Gets Real

The IRS finally got serious about cryptocurrency. Starting in 2026, exchanges must issue 1099-B and 1099-DA forms for all transactions. No more "I forgot I had that wallet" excuses. Staking rewards are ordinary income when received. I had a young developer client who thought his DeFi yields were "gray area." They are not. The IRS sent him a CP2000 notice for $8,400 in unreported income. He paid the tax plus penalties. Do not be that guy.

What Did Not Change

The estate tax exemption stays at $13.99 million per person (indexed for inflation). The alternative minimum tax (AMT) thresholds adjusted slightly but still hits far fewer people than before TCJA. The mortgage interest deduction cap remains at $750,000 of acquisition debt. Medical expense deduction floor stays at 7.5% of AGI.

The OBBBA's Hidden Gems

Most people focus on the big headline numbers—brackets, standard deduction, CTC. But the OBBBA included some smaller provisions that matter for specific taxpayers.

Auto Loan Interest Deduction for Seniors: Taxpayers 65+ can deduct up to $2,500 of auto loan interest. This is new for 2026. I have a retired client who bought a new Honda Accord. $3,200 in interest over the loan term. She gets $2,500 deductible. At her 12% bracket, that is $300 in savings. Not life-changing, but she was thrilled.

Tipped Income Deduction: Workers who receive tips can deduct up to $5,000 of tipped income. This is designed to offset the tax on tips for service industry workers. The mechanics are complex—it interacts with FICA credits and employer reporting—but for a server making $40,000 with $8,000 in tips, this could save $1,000-1,500 in tax.

Overtime Income Deduction: Similar to the tipped income provision, workers can deduct up to $5,000 of overtime pay. This is temporary—expires after 2028 unless extended. I have mixed feelings. It helps workers, but it complicates an already complex code.

State Conformity Chaos

Here is something most taxpayers do not think about: state tax codes. Most states conform to federal tax law automatically or selectively. When the OBBBA changed federal rules, states had to decide whether to follow.

Texas has no income tax, so conformity is irrelevant. California conforms selectively. New York conforms automatically. Florida has no income tax. Each state is different.

I had a client who moved from California to Texas in 2025. His California return for 2025 was a nightmare—California did not conform to several TCJA provisions, creating "add-backs" to federal income. The OBBBA made some of those permanent. California may or may not conform. We will not know until the California legislature acts.

You know what frustrates me? The clients who wait until April 10th to call me. Every. Single. Year. I had four new clients show up last week—April 8th, mind you—asking me to "quickly file" their returns. One of them had three 1099s, two K-1s, and a crypto trading history with 400 transactions. I told him honestly: "I can get this done by the deadline, but it is going to cost you rush fees, and I cannot promise we will not miss something."

He was not happy. But what am I supposed to do? Magic? I have got Jennifer and the kids waiting at home. Cooper needs his evening walk. My time is not infinite.

I want to say the OBBBA passed in... October? November? Let me check my notes... Right, late November 2025. The exact date does not matter for your 2026 return, but the timing did create some confusion for payroll systems in January. Most software providers had updates ready by December 15th, but I know at least two local Austin businesses had to manually adjust their January payroll because their provider was slow.

Here is my honest take: the OBBBA is mostly good news for business owners and families. The permanent QBI deduction alone justifies paying attention. But do not overthink it. Most individual taxpayers will not feel dramatic changes.

What I tell my kids—Olivia is starting to ask about "what Daddy does"—is that taxes are just math with rules. Learn the rules, or pay someone who knows them. After twelve years inside the IRS and eight years helping real people file real returns, I have learned that the biggest tax savings come from planning in November, not panicking in April.

If you are confused about where you stand, run your numbers through a calculator. Or call a CPA. Just do not wait until the last week of tax season. Please. For my sanity and yours.

— Michael Harrison, CPA
Former IRS Revenue Agent | Austin, TX
Practicing tax preparation and planning since 2018