IRS Get Ready 2026: New Tax Deductions, SALT Cap Increase, and Paper Check Phaseout

The 2026 filing season (Tax Year 2025) marks a historic turning point for American taxpayers. Defined by the proposed "One Big Beautiful Bill" (OBBB), the current landscape introduces major changes that move beyond standard deductions to provide targeted relief for homeowners, workers, and families.

If you are an individual or a small business owner, here is what you need to know to stay ahead.

1. The End of the $10,000 SALT Ceiling

For years, the State and Local Tax (SALT) deduction was capped at $10,000, forcing many middle-class families to take the standard deduction. The new OBBB proposal quadruples this cap to $40,000.

The Strategy: For residents in high-tax districts, the math has changed. It is time to re-evaluate whether itemizing your property and income taxes will yield a higher return than the standard deduction ($31,500 for joint filers).

2. The "Drive American" Interest Deduction

In a boost for domestic manufacturing, a new "above-the-line" deduction allows you to deduct up to $10,000 in interest on a loan for a new, personal-use vehicle.

The Catch: To qualify, the vehicle must be assembled in the U.S. (verified by a VIN starting with 1, 4, or 5) and weigh under 14,000 lbs. This benefit is available even to those who do not itemize, making it a powerful tool for new car buyers.

3. Relief for the Service and Industrial Workforce

Through the new Schedule 1-A, specific income streams are seeing unprecedented relief:

Tax-Free Tips: Qualified professionals may exclude up to $25,000 in tips from their gross income.
Overtime Protection: Up to $12,500 ($25,000 for joint filers) of the "half-time" premium for qualified overtime is now deductible.

These benefits begin to phase out at $150,000 MAGI ($300,000 for joint filers), so timing and income tracking are critical.

4. Legacy Wealth: The "Trump Account"

For families who welcomed a child in 2025, a new pilot program offers a $1,000 government seed contribution. These tax-deferred accounts are designed to grow until the child reaches age 18, with annual funding limits up to $5,000. Enrollment is made via the new IRS Form 4547.

5. The Fully Digital IRS

Under Executive Order 14247, the IRS is officially transitioning away from paper checks. All refunds are now mandated to be electronic. Whether you prefer direct deposit or a digital wallet, ensuring your IRS Online Account is verified and updated is no longer optional—it is a requirement for a timely refund.

Looking Ahead

While these provisions offer significant opportunities for wealth preservation, they are technically complex. Eligibility often hinges on Modified Adjusted Gross Income (MAGI) thresholds and specific documentation requirements (like VINs and FLSA-qualified pay stubs).

As these legislative drafts move toward finalization, we recommend a personalized consultation to ensure your 2026 filing strategy is both compliant and optimized.

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Disclaimer: The information provided in this document is for general educational purposes only and does not constitute professional tax, legal, or investment advice. Tax laws are subject to change. The specific application of these provisions depends on the individual facts and circumstances of each taxpayer. We strongly recommend a personalized consultation with a Qualified Tax Professional (CPA or Enrolled Agent) before making any financial decisions.

The SALT Deduction Ceiling

The proposed OBBB raises the State and Local Tax (SALT) cap to $40,000. Individually listing taxes now represents a significant strategic advantage over the standard deduction.

SALT Comparison Data
Category	Amount
Old SALT Cap	$10,000
Standard Deduction	$31,500
Proposed OBBB Cap	$40,000

Car Loan Interest

Deduct up to $10,000 in interest for new, personal-use vehicles assembled in the U.S. Available even if you do not itemize.

Requirement VIN Prefix 1, 4, or 5

Vehicle Limit Under 14,000 lbs

Schedule 1-A Labor Relief

Qualified Tips $25,000

Overtime Premium $12,500

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