Tax laws change often, and several important federal rules are different in 2026 than they were a few years ago. Understanding deductions, credits, and other tax provisions can help taxpayers avoid surprises and find benefits they may qualify for.
A tax deduction generally reduces the amount of income subject to federal income tax. A tax credit works differently. It reduces the amount of tax you owe, subject to the rules of the particular credit.
For Texans, most of these issues involve federal income taxes because Texas does not impose an individual state income tax. Texas residents may still owe other state and local taxes, including property and sales taxes.
The federal rules changed significantly in 2025 when Congress enacted Public Law 119-21, commonly called the One Big Beautiful Bill Act. The law made several provisions of the 2017 Tax Cuts and Jobs Act permanent. It also created new deductions that apply in 2026, some of which are temporary.
Federal Tax Brackets for 2026
The federal income tax system continues to use seven marginal tax rates in 2026: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income thresholds for those brackets have been adjusted for inflation.
For 2026, the top 37% rate applies to taxable income above $640,600 for single taxpayers and $768,700 for married couples filing jointly. Landing in a higher bracket does not mean all of your income is taxed at that rate. Different portions of your taxable income are taxed at progressively higher rates. For example, a single filer with $50,000 of taxable income pays the 10% rate only on the first slice of that income, the 12% rate on the next slice, and so on. Only the income above each threshold is taxed at the higher rate.
The Standard Deduction Is Higher in 2026
The standard deduction has increased again for tax year 2026. It is $16,100 for single taxpayers and married individuals filing separately, $32,200 for married couples filing jointly, and $24,150 for heads of household. These amounts apply to the return you file in early 2027.
Most taxpayers choose between the standard deduction and itemizing. Itemizing may make sense when your allowable expenses exceed the standard deduction. Those expenses can include mortgage interest, certain state and local taxes, qualifying medical expenses, and charitable contributions.
Personal Exemptions Remain Eliminated
The old personal exemption has not returned. The Tax Cuts and Jobs Act reduced it to zero beginning in 2018, and the 2025 federal tax legislation made that change permanent.
As a result, taxpayers cannot claim the former personal exemption for themselves, their spouses, or their dependents in 2026. Other deductions and credits may still be available depending on your family circumstances.
A Higher State and Local Tax Deduction May Help Some Texans
One major change involves the federal deduction for state and local taxes, commonly called the SALT deduction. For tax year 2026, the general limit is $40,400, or $20,200 for married taxpayers filing separately.
The limit shrinks for higher earners. Once modified adjusted gross income (MAGI) exceeds $505,000 ($252,500 for married taxpayers filing separately), the cap is gradually reduced by 30 cents for each dollar over the threshold. It will not fall below $10,000 ($5,000 for married taxpayers filing separately). MAGI is, roughly, your adjusted gross income with certain deductions and exclusions added back. It is the income measure many of these provisions use.
This increase is temporary. The higher cap is scheduled to apply through 2029 and then revert to $10,000 beginning in 2030, unless Congress changes the law.
The change can matter to Texas homeowners because property taxes count toward the SALT cap, and many Texans pay substantial property taxes. Most Texans have no state income tax to deduct. Those who itemize may instead elect to deduct state and local general sales taxes. You cannot deduct both sales taxes and state income taxes for the same purpose.
New Deductions for Tips, Overtime, Car Loans, and Seniors
Several deductions introduced in 2025 are available in 2026. They are scheduled to apply for tax years 2025 through 2028. Qualifying taxpayers can claim them even if they take the standard deduction rather than itemizing.
| Deduction | Maximum amount | Reduction begins at MAGI above |
|---|---|---|
| Qualified tips | $25,000 | $150,000 (individual) / $300,000 (joint) |
| Qualified overtime | $12,500 ($25,000 joint) | $150,000 (individual) / $300,000 (joint) |
| New vehicle loan interest | $10,000 | $100,000 (individual) / $200,000 (joint) |
| Age 65 or older | $6,000 per eligible person | $75,000 (individual) / $150,000 (joint) |
The rules behind each deduction include these requirements:
- Tips: The tips must be voluntary and properly reported. They must also be earned in an occupation that customarily and regularly received tips.
- Overtime: The deduction generally covers only the extra “half” portion of overtime pay required by the Fair Labor Standards Act. It does not cover the employee’s entire overtime paycheck.
- Vehicle loans: The loan must be for a new vehicle for personal use, with final assembly in the United States. Other requirements apply.
- Seniors: For a married couple in which both spouses qualify, the additional deduction can be up to $12,000.
Each of these deductions is reduced gradually once income exceeds the threshold, rather than disappearing all at once.
Despite phrases like “no tax on tips” or “no tax on overtime,” these provisions are deductions, not blanket exclusions from every tax. For example, tips and qualifying overtime generally remain subject to Social Security and Medicare taxes.
A New Charitable Deduction Begins in 2026
Starting with tax year 2026, taxpayers who do not itemize may still be able to deduct certain cash contributions to qualifying charitable organizations. The deduction is generally limited to $1,000 for individual filers and $2,000 for married couples filing jointly.
The gift must be cash given to a qualifying public charity. Contributions to donor-advised funds generally do not qualify. This gives taxpayers who take the standard deduction a new way to get a federal tax benefit for charitable giving.
The Federal Health Insurance Penalty Remains at Zero
The federal individual shared responsibility payment associated with the Affordable Care Act remains $0. The Tax Cuts and Jobs Act reduced the penalty to zero beginning in 2019. Taxpayers do not owe a federal payment merely because they lacked qualifying health coverage during 2026.
That does not eliminate every tax issue involving health insurance. Taxpayers who receive advance premium tax credits through the Health Insurance Marketplace may still need to report and reconcile those credits when they file their federal returns.
Some Home Energy Tax Credits Ended
Homeowners should know about an important change for 2026. The federal Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit generally are no longer available for qualifying expenditures made after December 31, 2025.
Homeowners considering improvements such as solar installations or certain energy-efficiency upgrades should not assume the credits available in prior years still apply to projects completed in 2026.
How a Tax Attorney Can Help
Most taxpayers filing a routine federal return do not need an attorney. A tax attorney becomes especially valuable when a taxpayer faces a legal dispute, IRS audit, appeal, collection action, significant tax debt, business tax issue, or complicated transaction.
Attorneys, certified public accountants, and enrolled agents who meet IRS requirements may represent taxpayers before the IRS. A tax attorney can be especially useful when the matter involves interpreting tax law, potential litigation, negotiating with taxing authorities, or questions about legal rights and liabilities.
Texas businesses may also face state tax issues involving sales and use taxes, the franchise tax, or other taxes administered by the Texas Comptroller. The Comptroller conducts audits to determine whether businesses have properly collected, reported, and paid applicable state taxes.
Tax law depends heavily on individual circumstances, and a deduction that benefits one taxpayer may not be available to another. If you are facing an IRS dispute, a Texas tax matter, an audit, collection activity, or another complicated tax issue, the Lawyer Referral Service of Central Texas can help connect you with an experienced tax attorney. Getting legal guidance early can help you understand your rights, respond appropriately to taxing authorities, and decide how best to resolve a tax-related legal problem.
This article is general information, not tax or legal advice. Reading it does not create an attorney-client relationship.
