The One Big Beautiful Bill Act (OBBBA) passed in July 2025 and changed the tax filing landscape for 2026. Most temporary provisions from the 2017 Tax Cuts and Jobs Act are now permanent. This creates planning stability but requires updated processes for tax season.
Qualified Business Income Deduction is Permanent
The Section 199A deduction stays at 20% for pass-through business owners. The income threshold increased for 2026:
- $75,000 for single filers
- $150,000 for joint filers
More clients qualify under the higher thresholds. Update intake forms to capture pass-through income accurately. Service professionals who previously phased out may now qualify.
Two New Employee Deductions
OBBBA created two deductions that affect W-2 earners starting with 2026 earnings.
Tip Income Deduction
Employees can deduct up to $25,000 in qualified tip income annually. The deduction phases out at:
- $150,000 MAGI for single filers
- $300,000 MAGI for joint filers
Overtime Compensation Deduction
Workers can deduct qualified overtime pay:
- Up to $12,500 for single filers
- Up to $25,000 for joint filers
Same phaseout thresholds as tip income.
What This Means for Your Practice
Employers must separately report qualified tips and overtime on Forms W-2 or 1099-NEC for 2026 payments. This is a new reporting requirement. Review W-2s carefully during intake. Verify employers coded these amounts correctly. Clients in service industries and hourly positions benefit most.
SALT Deduction Cap Increased
The state and local tax deduction cap increased to $40,000 for 2025. It will adjust annually through 2029.
High-tax state residents see the most benefit. The previous $10,000 cap limited deductions significantly. Itemizers in states like California, New York, and New Jersey should recalculate their deduction strategy.
Run projections comparing standard versus itemized deductions. The higher SALT cap may push more clients over the standard deduction threshold.
Alternative Minimum Tax Adjustments
AMT exemption phaseout thresholds reset to 2018 levels:
- $500,000 for single filers
- $1,000,000 for joint filers
The phaseout rate doubled to 50%. High-income clients face increased AMT risk.
Incorporate AMT calculations into planning sessions for clients earning above these thresholds. Investment income, ISO exercises, and large deductions trigger AMT exposure more easily under the new phaseout rate.
Itemized Deduction Cap for High Earners
A new limitation affects taxpayers in the 37% bracket. Itemized deductions are capped at 35 cents per dollar starting in 2026.
This replaces the previous Pease limitation. Clients with significant charitable contributions, mortgage interest, or medical expenses face reduced benefit. Calculate actual deduction value during planning meetings.
The cap affects timing strategies. Bunching deductions into alternate years may no longer provide the same benefit.
Estate and Gift Tax Exemption
The federal exemption increased to $15 million per individual and $30 million for joint filers in 2026. The amount indexes for inflation permanently.
This removes sunset uncertainty that complicated estate planning. Clients can structure long-term wealth transfers with confidence.
For tax preparers handling estate returns, the higher exemption reduces filing requirements. Fewer estates exceed the threshold.
What Stayed the Same
Tax brackets remain unchanged. Rates range from 10% to 37%. Standard deductions adjusted for inflation:
- Single filers: Standard deduction reflects normal inflation adjustment
- Joint filers: Standard deduction reflects normal inflation adjustment
Retirement contribution limits also adjusted for inflation using standard calculations.
These stable elements simplify year-over-year comparisons. Focus training and updates on the new provisions rather than relearning fundamentals.
Day-to-Day Filing Impact
Update Tax Software
Verify your software provider incorporated all OBBBA changes. Test the following:
- QBI calculation with new thresholds
- Tip and overtime deduction fields
- Updated SALT cap
- New AMT phaseout calculations
- Itemized deduction limitation for 37% bracket
Run sample returns before production season.
Revise Client Questionnaires
Add questions capturing:
- Pass-through business income for QBI eligibility
- Tip income separately stated
- Overtime compensation separately stated
- W-2 verification for proper tip/overtime coding
Missing this information delays returns and requires follow-up.
Client Communication
Proactive outreach reduces confusion. Send brief updates covering:
- New deductions they may qualify for
- Changes affecting their specific tax situation
- Documents needed that differ from prior years
Segment communications by client type. Self-employed clients need QBI information. Service workers need tip deduction details. High earners need AMT and itemized cap guidance.
Common Filing Mistakes to Avoid
Overlooking Employer Reporting Errors
The separate tip and overtime reporting requirement is new. Employers may code incorrectly. Cross-check W-2 amounts against pay stubs. File amended employer forms if necessary before claiming deductions.
Misapplying QBI Thresholds
The higher thresholds expand eligibility, but specified service trade or business (SSTB) rules still apply. Verify client business type before claiming the deduction.
Ignoring AMT on High-Income Returns
The doubled phaseout rate catches more taxpayers. Run AMT calculations on all returns exceeding $500,000 in income.
Miscalculating Itemized Deduction Value
The 35-cent cap requires actual calculation rather than assumption. Software should handle this, but verify the computation on high-income returns.
Planning Opportunities
Year-End QBI Planning
Clients near the threshold can manage income timing. Deferring income or accelerating deductions in December may preserve QBI eligibility.
Tip Income Documentation
Service industry clients should maintain tip logs throughout the year. Contemporaneous records support the deduction if questioned.
Estate Planning Certainty
The permanent higher exemption enables long-term gifting strategies. Coordinate with estate attorneys on client referrals.
Software and Tools
Most major tax software updated for 2026 changes by January. Verify your provider's update schedule. TIG Tax Pros offers software solutions updated for current tax law.
Test software with edge cases:
- Clients at exact phaseout thresholds
- Multiple pass-through entities
- Combined tip and overtime deductions
- High SALT states with maximum deduction
Edge case testing identifies calculation errors before filing.
Filing Season Preparation
Review these changes during staff training. Focus on:
- Identifying which clients benefit from new deductions
- Proper data entry for new fields
- Verification procedures for employer-reported amounts
- AMT screening protocols
Create checklists for different client types. Standardized processes reduce errors during high-volume periods.
The 2026 changes provide benefits for many taxpayers but require updated procedures. Focus on accurate data collection, software verification, and proactive client communication.