2027 Tax Season: What's New, What's Not, and What Actually Matters

New deductions, disappearing credits, and a few surprises hiding in the fine print.

If you’ve been following tax news, you’ve probably heard about no tax on tips, no tax on overtime, bigger deductions for seniors, and a higher limit on deducting state and local taxes.

It certainly sounds like good news.

And some of it is. But as is often the case with tax legislation, the headlines are considerably simpler than the rules themselves.

Most of these provisions actually took effect in 2025. But 2026 brings another round of changes, including some less-publicized ones that could have a meaningful effect on your return.

Here’s what matters when filing your 2026 taxes in 2027.

The Big Changes That Started in 2025

No Tax on Tips and Overtime (With Qualifications)

Two widely publicized provisions introduced deductions for certain tips and overtime pay.

Eligible workers can deduct up to $25,000 in qualified tips or up to $12,500 in qualified overtime compensation ($25,000 for married couples filing jointly).

Naturally, it’s not quite that simple.

The overtime deduction generally applies only to the extra compensation required under federal law. For someone earning time-and-a-half, that’s ordinarily the extra half, not the entire overtime paycheck.

The tips deduction also has restrictions, including eligible occupations. Both deductions phase out at higher income levels.

And despite the headlines, these provisions generally don’t eliminate Social Security and Medicare taxes on those earnings.

The good news? You can claim these deductions even if you don’t itemize.

IRS guidance: Tips and overtime deductions

A New Deduction for Seniors

Taxpayers age 65 and older may qualify for an additional $6,000 deduction, or $12,000 for married couples when both spouses qualify.

It’s available whether you itemize or take the standard deduction, but begins phasing out when modified adjusted gross income exceeds $75,000 for individuals or $150,000 for joint filers.

One misconception worth clearing up: this does not eliminate federal income tax on Social Security benefits. It’s a separate deduction with its own eligibility rules.

Not quite the same thing, despite what you may have heard.

Car Loan Interest: A Deduction With a Detailed Guest List

There’s also a new deduction of up to $10,000 annually for interest paid on qualifying vehicle loans.

The vehicle generally must be new, purchased for personal use, and have undergone final assembly in the United States. Income limits apply.

Used vehicles don’t qualify, and neither does a lease. Buying an American-brand vehicle doesn’t necessarily qualify you, either.

And remember, this is a deduction, not a tax credit. Deducting $2,000 in interest doesn’t mean the IRS sends you $2,000.

IRS guidance: Vehicle loan interest

A Higher SALT Deduction: Especially Interesting for New Jersey

The limit on itemized deductions for state and local taxes (SALT) increased substantially in 2025.

For 2026, the general limit is $40,400 for most filers, compared with the old $10,000 ceiling.

For homeowners in high-tax states like New Jersey, that sounds promising.

But the higher limit doesn’t guarantee a larger deduction.

You still need enough eligible state and local taxes, you generally need to itemize, and the higher cap shrinks for taxpayers above certain income thresholds.

There’s also the alternative minimum tax (AMT), which disallows state and local tax deductions. In some circumstances, AMT can offset the benefit you expected from the higher SALT limit.

Congress raised the ceiling. Whether you can reach it—and whether it helps when you do—is another question.

What’s Actually New for 2026?

Charitable Contributions: Good News for Some, a New Limitation for Others

Beginning in 2026, taxpayers who take the standard deduction can also deduct certain cash charitable contributions—up to $1,000 for individuals or $2,000 for married couples filing jointly.

That’s welcome news for people who donate regularly but don’t itemize.

For those who do itemize, however, there’s a new restriction: charitable contributions are subject to a floor equal to 0.5% of adjusted gross income.

For example, with $100,000 in adjusted gross income and $2,000 in qualifying donations, the first $500 won’t count toward your itemized charitable deduction. That leaves $1,500 potentially deductible, subject to the usual limitations.

So charitable giving has become more deductible for some taxpayers and less deductible for others.

Tax law does have a talent for this sort of thing.

A Better Child and Dependent Care Credit

Here’s some welcome news for working families.

The maximum Child and Dependent Care Credit rate increases from 35% to 50% of qualifying expenses, with revised income thresholds.

The eligible expense limits remain $3,000 for one qualifying person and $6,000 for two or more, making the maximum possible credit $1,500 or $3,000.

The credit percentage depends on income, and the credit is nonrefundable.

It’s also not limited to young children. Expenses for the care of certain spouses or dependents who cannot care for themselves may qualify.

IRS guidance: Child and Dependent Care Credit

Marketplace Health Insurance: Watch Your Income

This may be one of the most consequential changes for taxpayers who purchase health insurance through the Affordable Care Act Marketplace.

Two rules change for 2026.

First, the temporary expansion of premium tax credits has expired. In general, households with income above 400% of the federal poverty level are no longer eligible for the federal credit.

Second, the limits on repaying excess advance premium tax credits have been eliminated.

Previously, many taxpayers had some protection against having to repay the full amount of excess subsidies. For 2026, that protection is gone.

If your actual income exceeds the estimate used to calculate your subsidies, you may have to repay the entire excess amount.

This is particularly important for self-employed taxpayers, people with variable incomes, and investors who realize unexpected capital gains.

A substantial capital gain late in the year could create a sizable repayment obligation. And unlike some tax surprises, this one may still be avoidable with planning.

If you receive Marketplace subsidies, reviewing your projected 2026 income before year-end is well worth the effort.

IRS guidance: Premium tax credit repayment changes

Some Tax Credits Have Quietly Left the Building

While new deductions have received plenty of publicity, several popular tax credits have disappeared.

The federal credits for qualifying new and used clean vehicles generally ended for vehicles acquired after September 30, 2025.

Two home energy credits also ended after 2025:

• The Energy Efficient Home Improvement Credit, previously available for qualifying windows, insulation, and certain heating and cooling equipment.
• The Residential Clean Energy Credit, covering eligible expenditures for solar panels, battery storage, and other qualifying systems.

If you made improvements in 2026 expecting the same incentives available in previous years, you may be disappointed.

For projects near the expiration deadlines, the precise dates and applicable transition rules matter.

IRS guidance: Energy credit changes

Cryptocurrency: More Information for the IRS, Not Necessarily More Clarity for You

Cryptocurrency reporting continues to evolve.

Form 1099-DA, introduced for certain digital-asset transactions in 2025, expands to include cost-basis reporting for certain covered assets sold beginning in 2026.

In principle, this should make reporting gains and losses easier.

In practice, there’s still a gap between what an exchange knows and what a taxpayer needs to report.

An exchange generally can’t determine the original cost basis of cryptocurrency acquired elsewhere and subsequently transferred onto its platform. Assets acquired before the new basis-reporting rules took effect may also lack reported basis information.

And transactions involving self-custody wallets, decentralized exchanges, staking, and DeFi protocols aren’t necessarily captured in an exchange’s reporting.

The result? A Form 1099-DA may tell only part of the story.

Missing cost basis can make a transaction appear to produce a much larger gain than it actually did. That’s not something you want to discover after filing.

If you receive a Form 1099-DA, reconcile it with your complete transaction history rather than assuming it’s sufficient to prepare your return.

IRS instructions: Form 1099-DA

A Few Other Numbers Worth Knowing

The standard deduction increased again for 2026:

Tax brackets and other thresholds have also been adjusted for inflation.

Another change worth noting: the general Form 1099-NEC reporting threshold for qualifying payments increases from $600 to $2,000 beginning in 2026.

That doesn’t mean income below $2,000 is tax-free. Self-employed taxpayers generally must report their taxable business income whether or not they receive an information return.

No form doesn’t mean no tax.

The Bottom Line

The 2027 filing season brings a mix of new deductions, additional reporting requirements, and credits that have disappeared altogether.

Some changes are genuinely beneficial. Others are more limited than their headlines suggest. And a few, particularly the Marketplace subsidy rules, could create expensive surprises.

The important question isn’t simply whether a new deduction or credit exists. It’s whether it applies to your circumstances and what difference it actually makes on your return.

After all, the tax code is full of deductions that sound wonderful right up until you read the qualifications.

This article provides general information about federal income tax law for the 2026 tax year, based on guidance available as of October 30, 2026. Individual circumstances and state tax rules may differ. It is not individualized tax advice.

Wendy Litten, EA
Enrolled Agent since 2006, serving clients nationwide with cryptocurrency tax expertise, complex return preparation, and IRS representation.
Litten Tax