What OBBBA Tax Changes Take Effect in 2026?

As individuals and businesses prepare to file 2025 returns, most are still unpacking how the One Big Beautiful Bill Act (OBBBA) will affect last year's taxes. But while attention is on last year’s filings, January 1 also ushered in a new set of provisions that will influence what 2026 looks like. There are several new reporting and compliance considerations that could impact your tax situation down the line, along with strategic planning opportunities to reduce taxes that are worth paying attention to now, before the year gets too far along.

What is Changing for Businesses?

New Tip and Overtime Requirements

The OBBBA introduced new deductions for qualified tips, and the premium portion of overtime pay, as well as reporting thresholds for certain independent contractor payments. While those benefits are claimed by individuals on their tax returns, employers are responsible for tracking and reporting the information in order for the deductions to be allowed. Since the new provisions weren’t passed until July, employers are not required to include detailed tip and overtime pay on W-2s or 1099s in 2025.

Starting in 2026, however, the transition period ends and full reporting applies. The IRS has added new reporting boxes to draft Forms W-2 and 1099 and will expect employers to separately report qualified tips, overtime, and related classification information as part of their annual payroll and contractor reporting. To comply, this means that payroll, time-tracking, and point-of-sale systems must be able to capture and code those amounts throughout the year in order to flow into 2026 year-end reporting.

Expanded QBI Eligibility

More owners of pass-through entities may be eligible to take the 20 percent qualified business income (QBI) deduction in 2026 under changes made by the OBBBA. The law made permanent what had previously been scheduled to expire and expanded the phase-in income ranges for specific service trades and businesses subject to wage and capital limits, providing long-term certainty around the availability of the deduction.

For 2026, those phase-in ranges are:

• Married filing jointly: $403,500 to $553,500 (up from $394,600 to $494,600 in 2025)
• Single filers and heads of household: $201,750 to $276,750 (up from $197,300 to $247,300 in 2025)

This means that owners of S corps, partnerships, and LLCs who were fully phased out of the deduction in prior years could fall back within the allowable range, while others may qualify for a larger partial deduction without having to rely on the same wage, asset, or income-management strategies that were previously required. However, these should still be monitored throughout the year to determine how they line up with the revised thresholds.

Higher Employer Credits for Childcare and Paid Leave

Qualifying employers could see an increase in credits tied to childcare and paid family and medical leave in 2026 stemming from changes in the OBBBA. These changes increase the amount employers can claim and broaden how the credits can be used, lowering the after-tax cost of offering benefits that have become more common across the workforce, with private sector coverage doubling since 2017.

Under the new rules, the childcare credit increases from $150,000 to $500,000 and the paid family and medical leave credit (up to 25 percent of wages paid for qualified leave) is made permanent. Employers can now factor these benefits into longer-term compensation and budgeting decisions rather than treating them as temporary incentives.

What to consider in 2026:

• Do your existing childcare or paid-leave programs qualify under the expanded rules?
• Could your benefit structures be adjusted to capture a larger credit?
• Are your payroll and benefits systems capturing the costs needed to claim the credit?

Updated Calculations for Foreign Income and Global Taxation

New rules released under the OBBBA change the way foreign income is calculated and taxed for US companies with an international footprint, including:

• GILTI (Global Intangible Low-Taxed Income) is now NCTI (Net Controlled Foreign Corporation Tested Income), which eliminates the 10 percent Qualified Business Asset Investment (QBAI) exclusion and pulls more foreign income into U.S. taxation.
• The Foreign Tax Credit (FTC) has been expanded under NCTI, increasing the credit for foreign taxes paid from 80 percent to 90 percent and changing how interest and R&D expenses are allocated.
• FDII (Foreign-Derived Intangible Income) is now FDDEI (Foreign-Derived Deduction Eligible Income) and similarly removes the 10 percent tangible-asset carve-out and changes how export income qualifies for a US tax deduction, with slightly higher tax rates but a broader income base.

The impact of these changes will vary depending on where a company’s assets and income are located. The more that is held in the US, the more favorable the tax outcome could be. In 2026, multinational companies should take a close look at their global ownership structures and cross-border transactions to see how they fit under the new rules.

What is Changing for Individuals?

Permanent Tax Breaks and Higher Standard Deductions

Individual tax brackets are now permanent, and the standard deduction was increased to $15,000 for individuals and $30,000 for married couples, with an additional $6,000 bonus deduction ($12,000 for married filed jointly) for qualifying seniors.

Moving into 2026, taxpayers can better forecast when to convert to a Roth, sell investments, or take bonuses, as just a few examples of planning opportunities now that tax rates and brackets are locked in. At the same time, it’s worth reviewing medical expenses and charitable gifts to see whether grouping them into certain years would allow those deductions to be fully used instead of being lost under the higher standard deduction.

Changes to Charitable Donation Deductions

Another area to keep an eye on in 2026 is how charitable gifts are deducted. The OBBBA changes three main areas to giving this year:

• For taxpayers who itemize, a new 0.5 percent of adjusted gross income (AGI) floor now applies, which means the first portion of a charitable gift is no longer deductible. For example, if AGI is $200,000, the first $1,000 of charitable donations would not count toward a tax deduction.
• High-income earners are also subject to a 35 percent cap on the value of itemized charitable deductions, down from the prior 37 percent top rate. This means that a $100,000 donation would reduce federal taxes by $35,000 instead of $37,000.
• Taxpayers who take the standard deduction can now deduct cash gifts of up to $1,000 for single filers or $2,000 for married couples filing jointly.

What does this mean for charitable planning this year? Taxpayers may want to consider bunching donations into a single year, so the deduction clears the income floor and is fully usable. Donor-advised funds can also be a smart move, allowing a taxpayer to take the deduction up front while spreading the charitable grants over time. And donating appreciated assets, such as stocks or business interests, can help avoid capital gains tax while still generating a charitable deduction.

Estate and Gift Tax Exemptions

With the increased federal estate, gift, and generation-skipping transfer tax exemptions to $15 million per person ($30 million for married couples), far more family wealth can be transferred without triggering transfer tax.

Families should consider revisiting how assets are titled and where they sit inside trusts, evaluating whether lifetime gifts make more sense than waiting for an estate transfer, and checking whether property held in other states could still be subject to lower state-level estate taxes.

It is also a good time to look at which assets are better suited for gifting versus holding for a step-up in basis, and to make sure there is enough liquidity built into the estate, so heirs are not forced to sell assets under pressure. For those over 70½, using Qualified Charitable Distributions from IRAs can also reduce taxable income while supporting charitable goals.

Federal Energy Incentives Sunset

In 2026, we say goodbye to several popular energy tax credits that had helped offset the cost of home and property upgrades. With those incentives now gone, there is no longer a federal tax benefit tied to installing solar, upgrading HVAC systems, or making energy-efficiency improvements, so projects should be evaluated based on their economics or state incentives alone rather than expected tax savings.

Start Planning Now

The tax picture for 2026 is clearer than it has been in years past. But decisions are more nuanced. Reporting rules are changing, deductions are shifting, and timing matters.

The focus this year should be on lining up income and making strategic choices with the rules that are now in place while the window is available. Those who take a proactive approach now will be better positioned as the year moves forward.

Contact your R&A advisor to talk through planning opportunities for 2026.