The Internal Revenue Service opened the 2026 tax filing season on Monday, January 26, and this year is different. The agency expects to process approximately 164 million individual income tax returns, but for the first time in nearly a decade, filers will encounter a fundamentally reshaped tax code—one that introduces new deductions, new credits, new forms, and even a new type of retirement savings account for children.

The changes stem primarily from the One Big Beautiful Bill, signed into law on July 4, 2025, which represents the most sweeping overhaul of the federal tax code since the Tax Cuts and Jobs Act of 2017. While the legislation touched virtually every corner of the tax code, several provisions will have an immediate and tangible impact on the returns Americans file this season for the 2025 tax year.

No Tax on Tips: The Change Millions of Workers Have Been Waiting For

Perhaps the most talked-about provision is the elimination of federal income tax on tips for eligible workers. The new deduction, claimed on the newly created Schedule 1-A, allows tipped employees to exclude qualifying tip income from their federal taxable income.

The provision applies to workers in occupations where tipping is customary—restaurant servers, bartenders, hotel staff, hairdressers, taxi and rideshare drivers, and similar roles. The IRS has published detailed guidance on which occupations qualify and how to document tip income properly.

For a server earning $35,000 in wages plus $20,000 in tips, the provision could reduce their federal tax bill by $2,200 to $4,400, depending on their filing status and other deductions. Multiplied across the estimated 4 million workers in tipped occupations, the provision represents a significant transfer of income from the federal treasury to some of the economy's lowest-paid workers.

It is important to note that Social Security and Medicare taxes (FICA) still apply to tip income. The exemption covers federal income tax only, meaning tipped workers will still see payroll deductions on their tip earnings.

No Tax on Overtime: Relief for Hourly Workers

A companion provision eliminates federal income tax on overtime pay. Workers who earn time-and-a-half or double-time for hours worked beyond 40 per week can now deduct that overtime premium from their taxable income using Schedule 1-A.

The deduction applies to the overtime premium only—not the base hourly rate for those hours. For a construction worker earning $30 per hour who logs 10 hours of overtime per week, the exemption covers the $15 premium per hour (the extra half-time), translating to roughly $7,800 in annual tax savings at a 22% marginal rate.

Enhanced Senior Deduction: Up to $12,000 for Couples Over 65

Taxpayers aged 65 and older in 2025 are eligible for a new senior deduction of up to $6,000 for single filers or $12,000 for married couples filing jointly. This deduction is available in addition to the existing additional standard deduction for seniors, effectively creating a double benefit for older Americans.

The deduction phases out for single filers with modified adjusted gross income above $75,000 and for joint filers above $150,000, targeting the benefit toward lower- and middle-income retirees who are most likely to be living on fixed incomes.

Combined with the existing additional standard deduction of $1,600 for single filers ($3,200 for married couples) and the base standard deduction, a married couple over 65 filing jointly could shelter up to $47,400 in income from federal tax—a significant benefit for retirees drawing on Social Security and modest retirement savings.

The Car Loan Interest Deduction

In a provision that surprised many tax analysts, the One Big Beautiful Bill introduced a deduction for interest paid on auto loans. Available for tax years 2025 through 2028, the deduction allows taxpayers to write off interest paid on loans for personal vehicles, regardless of whether they itemize deductions.

With the average new car loan carrying an interest rate of approximately 7.5% and the average new vehicle price hovering near $49,000, a borrower financing $40,000 could deduct roughly $2,800 in interest in the first year of the loan. At a 22% marginal tax rate, that translates to approximately $616 in tax savings.

The deduction is claimed on Schedule 1-A and is available for loans on new and used vehicles alike. Leases do not qualify, as the borrower does not technically pay interest on a lease.

Trump Accounts: A New Savings Vehicle for Children

One of the more novel provisions introduces "Trump Accounts," a new retirement savings vehicle for children under the age of 18. The accounts function similarly to Roth IRAs—contributions are made with after-tax dollars and grow tax-free—but with a unique twist: the federal government will contribute a one-time $1,000 seed deposit for eligible children born between January 1, 2025, and December 31, 2028.

Parents, guardians, and other authorized individuals can make additional contributions, though the annual limits and other operational details are still being finalized by the Treasury Department. The pilot program is expected to begin accepting applications in the second half of 2026.

Financial advisors note that the accounts could be a powerful wealth-building tool, particularly for families that start contributing early. A $1,000 initial deposit growing at a historical average market return of 10% annually would be worth approximately $117,000 by the time the child reaches age 50—without any additional contributions.

Higher Standard Deductions and Expanded Credits

Beyond the headline provisions, the 2026 filing season brings inflation-adjusted increases to several key tax parameters:

  • Standard deduction: $16,100 for single filers, $32,200 for married filing jointly (up from $15,000 and $30,000 in 2024, reflecting both inflation and a one-time 5% bump from the OBBB)
  • Child tax credit: $2,200 per qualifying child under 17, up from $2,000
  • Earned Income Tax Credit: Maximum of $8,231 for families with three or more children
  • Estate tax exclusion: $15,000,000, up from $13,990,000
  • Foreign earned income exclusion: $132,900, up from $130,000

Paper Checks Are Gone

One procedural change that could catch filers off guard: the IRS has largely phased out paper tax refund checks in accordance with an executive order signed in September 2025. Most taxpayers must now provide bank routing and account numbers to receive their refunds via direct deposit.

Taxpayers who do not have a bank account can use a prepaid debit card or work with a tax preparer who offers refund transfer services. The IRS also partners with the Bank On initiative to connect unbanked Americans with low-cost checking accounts.

For those filing electronically with direct deposit, the IRS expects most refunds to be issued within 21 days. Returns claiming the Earned Income Tax Credit or Additional Child Tax Credit will see refunds no earlier than March 2, per federal law.

What Filers Should Do Now

Given the scope of the changes, tax professionals are urging filers to take extra care this season. Here are the key steps:

Review eligibility for new deductions: If you earn tips, work overtime, are over 65, or pay interest on a car loan, you may qualify for deductions that did not exist last year. Check the IRS's updated Publication 17 for detailed eligibility criteria.

Use Schedule 1-A: The new form is required to claim the tip, overtime, car loan interest, and senior deductions. Tax preparation software has been updated to include it, but filers using paper forms should ensure they have the latest versions.

Set up direct deposit: With paper checks largely eliminated, ensure your bank information is current and correct. A single transposed digit can delay your refund by weeks.

Consider professional help: The complexity of this year's changes may justify the cost of a professional tax preparer, particularly for filers who qualify for multiple new deductions or who have experienced life changes such as retirement, a new car purchase, or a career in a tipped occupation.

The filing deadline is April 15, 2026. With rules this new and stakes this high, starting early is more important than ever.