| Hello John, As we step into 2026, the economic landscape has shifted significantly. The Working Families Tax Cuts bill, signed into law last July, saw its most impactful provisions go into effect on January 1.
In this edition, we’ll break down the key provisions of the law and what they mean for your wallet, your family, and your future. Here are a few key points to remember:
- Addresses the rising cost of living — The bill overhauls the tax code to provide relief as everyday costs continue to rise, with sweeping reforms now signed into law.
- Adds more tax benefits for working Americans — It preserves the successful 2017 tax cuts while expanding them, strengthening relief for middle-class families.
A quick (but important) note: People are free to disagree with some of these provisions (even we didn’t support all of them), but no one can accurately say that this law ignores the middle class or doesn’t address affordability. 1. Making tax relief permanent: For years, taxpayers faced a “tax cliff” at the end of 2025, as many provisions from the 2017 Trump tax cuts were set to expire. The Working Families Tax Cuts bill made several of these permanent, providing long-term certainty for household budgeting. - Lower individual rates — The seven lower tax brackets established in 2017 are now permanent.
- Enhanced standard deduction — To help simplify filing and provide immediate relief, the larger standard deduction is here to stay. For 2026, this sits at $32,200 for married couples and $16,100 for single filers, and it will increase every year, indexed to inflation.
- On the downside — The new law raises the state-and-local tax (SALT) deduction cap from $10,000 to $40,000 for those with incomes under $500,000. This provision was necessary to pass the bill into law, but it essentially protects liberal politicians in high-tax states by having federal taxpayers subsidize their tax-and-spend policies.
2. Targeted “take-home” pay boosts: The new law also contains new deductions for service and blue-collar workers. - No tax on tips — Workers in tipped industries can now claim an above-the-line deduction of up to $25,000 on qualified tip income.
- No tax on overtime — Under the new “Working Families” provision, hourly workers can deduct up to $12,500 ($25,000 for joint filers) of qualified overtime pay.
3. Support for families and seniors: The Working Families Tax Cuts bill introduces new mechanisms to help with the “sandwich generation” challenges of raising children while caring for aging parents. - Child tax credit — The CTC has been permanently set at $2,200 per child, a $200 increase from previous levels, with new inflation adjustments starting this year.
- The “Trump Account” — A new type of savings vehicle for children under 18, allowing for up to $5,000 in annual contributions. For those lucky enough to have a newborn between 2025 and 2028, the federal government is providing a $1,000 seed contribution to kickstart their savings.
- Senior deduction — Filers aged 65 and older now qualify for an additional $6,000 deduction, helping protect fixed incomes from the sting of inflation.
4. Health care and transportation shifts: While the bill offers many tax cuts, it also changes how we pay for essential services. - Health savings account expansion — Starting this year, Bronze and Catastrophic health plans bought through the Obamacare exchanges are now HSA-compatible, allowing more Americans to save for medical costs tax-free. Additionally, the bill allows for tax-free HSA withdrawals to pay for direct primary care (DPC) fees (up to $150/month).
- Car loan interest — In an effort to support domestic manufacturing and middle-class buyers, interest on loans for U.S.-assembled vehicles is now deductible up to $10,000 for eligible taxpayers.
The bottom line on affordability: By making tax cuts permanent and introducing specific deductions for overtime and tips, the Working Families Tax Cuts bill aims to put more liquid cash into the hands of the working class. As you receive your first paychecks of 2026, keep a close eye on your withholdings. The IRS has issued new procedures to account for these changes, and your take-home pay may look a little different this month. Lawmakers — whether they supported or opposed the bill — need to hear from you. Speak up now and let them know you’re paying attention. |
