Federal tax issues to watch ahead of the 2026 filing season

As the 2026 federal tax filing season approaches (for 2025 returns), several areas of tax law and IRS implementation are likely to shape taxpayers’ experiences and compliance expectations. While many core rules remain familiar, new deductions and reporting changes enacted in 2025 are expected to affect filers differently than in recent years. 

As part of its government relations and advocacy work, the National Association of Tax Professionals (NATP) monitors federal tax policy, IRS guidance and enforcement priorities, and its experts regularly provide expert context to media, policymakers and tax professionals. 

Below are six federal tax issues worth watching ahead of the 2026 filing season, based on current statutes, IRS guidance and announced implementation steps. 

1. “No tax on tips” deduction: eligibility, caps and new definitions (temporary) 

A new federal deduction is available for qualified tips for tax years 2025 through 2028, subject to limits and definitions established by the IRS and Treasury. The maximum annual deduction is up to $25,000, with a phaseout beginning at $150,000 modified adjusted gross income ($300,000 for joint filers).  

Key considerations include: 

• Who qualifies depends on IRS definitions of qualified tips and eligible occupations. 

• The IRS introduced Schedule 1-A, Additional Deductions, to claim this deduction. 

• Treasury/IRS have also issued penalty relief tied to new information reporting requirements connected to tips. 

• Treasury/IRS issued guidance for determining the deduction, as 2025 informational forms will not be updated for the year. 

2. “No tax on overtime” deduction: what counts as qualified overtime (temporary) 

For tax years 2025 through 2028, eligible taxpayers may claim a new deduction for qualified overtime compensation under rules and definitions provided by IRS guidance. 

Key considerations include: 

• The deduction hinges on how qualified overtime compensation is defined and reported.  

• IRS/Treasury issued guidance and penalty relief for 2025 as information reporting requirements phase in.  

• The IRS introduced Schedule 1-A, Additional Deductions, to claim this deduction. 

• Treasury/IRS issued guidance to determine the deduction, as 2025 informational forms will not be updated for the year. 

3. Vehicle loan interest deduction: new deduction with specific requirements (temporary) 

A new deduction is available for interest paid on certain qualified passenger vehicle loans under rules enacted in 2025. IRS guidance emphasizes that qualification depends on specific requirements (including updates clarifying final assembly in the United States) and reporting rules. 

Key considerations include: 

• The deduction is tied to specified passenger vehicle loans and eligibility requirements under the new law. 

• IRS issued transitional guidance for 2025 reporting and administration. 

• Taxpayers should review the final assembly in the U.S. requirement and other limitations described in IRS materials. 

4. New deduction for seniors (age 65+): additional $6,000 (temporary) 

For tax years 2025 through 2028, individuals age 65 and older may claim a new additional deduction of $6,000, which is separate from the addition to the existing standard deduction available to seniors under prior law. 

Key considerations include: 

• Eligibility is based on age and applicable IRS rules. 

• This is a temporary provision (effective 2025-2028). 

• Taxpayers should consider how this interacts with their filing status and overall tax situation. 

5. Increased limits on the state and local tax (SALT) deduction 

Under H.R. 1, signed into law on July 4, 2025, the cap on the state and local tax (SALT) deduction increased from $10,000 to $40,000 (with inflation adjustments for 2026 through 2029) for 2025 through 2029.  

This change may allow more taxpayers, particularly those in higher-tax states, to benefit from itemizing deductions, though itemizing will still not be advantageous for all filers.  

Evaluating whether itemizing provides a tax benefit under the new SALT limit remains an important step in filing preparation. 

6. IRS implementation and compliance: new deductions, new reporting, new relief 

With multiple new deductions coming online for the 2025 tax year, the IRS has issued guidance, proposed regulations, and transitional/penalty relief as forms and reporting requirements are updated. 

This season, taxpayers and tax professionals should be prepared for: 

• Updated IRS forms and instructions tied to new deductions (tips/overtime). 

• New or updated information reporting expectations and transitional relief. 

• Greater need for documentation to support eligibility for specific deductions.  

Federal tax policy, compliance and public understanding 

Federal tax law and IRS implementation evolve over time, and even well-intentioned provisions can lead to confusion if taxpayers rely on outdated assumptions or incomplete information. 

Through its government relations and advocacy efforts, NATP works to: 

• Monitor federal tax policy and IRS guidance 

• Advocate for clarity and fairness in tax administration 

• Support tax professionals and the public with accurate, practical context 

Understanding these issues ahead of filing season can help reduce uncertainty and improve compliance outcomes. 

Frequently asked questions

When does ‘no tax on tips’ start and is it unlimited? 
The IRS describes it as a new deduction effective for tax years 2025-2028, subject to caps, phaseouts and definitions of qualified tips/occupations. 

How does ‘no tax on overtime’ work? 
IRS guidance outlines eligibility and what qualifies as overtime compensation for purposes of the deduction, along with related reporting/penalty relief for 2025. 

What is the new senior deduction? 
IRS materials describe a new additional $6,000 deduction for individuals age 65+, effective 2025-2028, in addition to the existing additional standard deduction. 

Is there really a vehicle interest deduction now? 
IRS fact sheets and guidance describe a new deduction tied to interest on specified passenger vehicle loans, including updated language around “final assembly in the United States,” plus transitional reporting guidance for 2025.