What's Happening?
The One Big Beautiful Bill (OBBB), passed in July, has introduced significant changes to the U.S. federal income tax system. This legislation permanently extends provisions from the 2017 Tax Cuts and Jobs
Act, including larger standard deductions and lower individual tax rates. The bill also introduces new tax benefits, such as increased deductions for seniors and a higher cap on state and local tax deductions. Additionally, it provides tax breaks on tips and overtime pay, and allows deductions for car loan interest on new vehicles. These changes are set to impact the 2026 tax season, affecting how Americans file their taxes.
Why It's Important?
The OBBB's tax reforms are poised to have a substantial impact on American taxpayers and the economy. By making certain tax cuts permanent, the bill aims to provide long-term financial relief to individuals and businesses. The increased standard deduction and lower tax rates could lead to significant savings for taxpayers, potentially boosting consumer spending. However, the changes also pose challenges, such as the exclusion of certain low-wage workers from tax breaks on tips and overtime. The bill's provisions could also strain state budgets, as they may need to adjust their tax codes to align with federal changes.
What's Next?
As the 2026 tax season approaches, taxpayers and tax professionals will need to familiarize themselves with the new rules introduced by the OBBB. States will also need to decide whether to conform to the federal tax changes, which could involve legislative action. The IRS is expected to provide further guidance on the implementation of these changes, and taxpayers are advised to consult with tax professionals to understand how the new rules will affect their tax liabilities.
