2026 Tax Changes: What Actually Changed (and What Matters in California)

Most of what's "new" for 2026 traces back to the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025. Some provisions applied retroactively to 2025 returns, but the bulk took effect January 1, 2026.

The big structural change

The 10/12/22/24/32/35/37% brackets are now permanent rather than expiring at the end of 2025, which would have raised most people's rates. Thresholds still adjust annually for inflation. The higher standard deduction and the elimination of personal exemptions are also locked in.

New above-the-line deductions

These are claimable even if you take the standard deduction, on the new Schedule 1-A:

• Tips — up to $25,000 of reported tip income for workers in customarily-tipped jobs, phasing out above $150,000 single / $300,000 joint, expiring after 2028.
• Overtime — capped at $12,500 ($25,000 married filing jointly), and only the premium portion counts. FLSA-required overtime qualifies; state daily-overtime or contractual overtime generally doesn't. California's daily OT rules make this a real distinction here.
• Car loan interest — up to $10,000, for new U.S.-assembled vehicles.
• Senior deduction — $6,000 for those 65+, full benefit below $75,000 MAGI single / $150,000 joint, phasing out above. This stacks on top of the existing extra standard deduction, which rises to $2,050 single / $3,300 joint for 2026.

Other notable items

• The SALT cap jumps from $10,000 to $40,000 for the next four years — meaningful in California, and worth re-running the itemize-vs-standard math.
• 401(k)/403(b) limit rises to $24,500; IRA to $7,500. Under SECURE 2.0, the regular catch-up is $8,000, the 60–63 "super catch-up" is $11,250, and high earners must now make catch-up contributions on an after-tax Roth basis.
• Most residential energy-efficiency credits have phased out.
• The IRS retired its free Direct File program, pointing people toward Free File instead.
• New forms: 1099-DA for crypto and 1098-VLI for car loan interest.

One caveat worth flagging

States decide separately whether and when to conform to the federal changes, so your state return may not mirror any of this. The IRS also updated its Withholding Estimator in March 2026 to account for the new deductions — if you earn tips or overtime, checking your W-4 is probably the highest-value thing to do.