Tax season always feels like a headache, but the conversation around the trump proposed tax plan has turned into a full-blown migraine for many. Honestly, trying to keep up with what's actually law and what's just campaign talk is a mess. You've probably heard a dozen different versions of what's happening to your paycheck.
Basically, the centerpiece of this whole thing—officially known as the "One, Big, Beautiful Bill" (OBBB) signed on July 4, 2025—is all about making the 2017 Tax Cuts and Jobs Act (TCJA) permanent. If that didn't happen, we'd be looking at a massive tax hike for almost everyone this year.
The Big Shifts You’ll Actually Notice
Let's talk about the standard deduction. For 2026, it's jumping up to $32,200 for married couples filing jointly. If you’re single, you’re looking at $16,100. That’s a decent chunk of change you don't have to pay taxes on right out of the gate.
But here’s where it gets interesting: the new "No Tax on Tips" and "No Tax on Overtime" rules.
If you work in a service job—think bartenders, stylists, or servers—you can now exclude up to $25,000 in tips from your federal income tax. There’s a catch, though. This starts phasing out once you hit a modified adjusted gross income (MAGI) of $150,000 for singles. Similarly, hourly workers can deduct a portion of their overtime pay, capped at $12,500 for individuals.
It sounds great on paper. However, critics like the Minnesota Budget Project argue these shifts mostly help specific industries and could blow a hole in the federal deficit, which is projected to grow by $3.8 trillion over the next decade because of this bill.
What’s Happening with Credits and "Trump Accounts"
The Child Tax Credit (CTC) is sticking around and actually getting a small bump. For the 2026 tax year, the maximum is $2,200 per kid. It’s also finally indexed to inflation, so it won't just sit at the same number forever while prices go up.
Then there’s the "Trump Account." This is a new one.
The government is basically seeding $1,000 into a tax-exempt account for every child born between 2025 and 2028. Parents can add up to $5,000 a year. It’s sorta like a 529 plan but more flexible, intended for things like buying a first home or retirement later in life.
Why the SALT Cap is Moving
Remember the $10,000 cap on State and Local Tax (SALT) deductions? People in high-tax states like New York and California absolutely hated it.
Under the trump proposed tax plan, that cap has been raised significantly to $40,000 for the years 2025 through 2029. This is a huge win if you itemize. But—and there is always a "but" with the IRS—this benefit is limited for the ultra-wealthy. If your MAGI is over $500,000, that cap starts shrinking back down toward $10,000.
Business Owners and the "Pass-Through" Win
If you run a small business or work as a freelancer (a "pass-through" entity), the 20% deduction is now permanent. In fact, for many, it’s been expanded to 23%.
This is huge for local shops and independent contractors.
On the corporate side, the rate is staying at 21%, though there’s been plenty of talk about pushing it down to 15% for companies that manufacture strictly in the U.S.
What’s Disappearing?
It isn't all just "giving away" money. To pay for some of this, the plan guts several "green" incentives.
The federal EV tax credit? Gone.
Energy-efficient home improvement credits? Phased out after December 31, 2025.
Instead, the revenue is being cushioned by new tariffs—a 10% universal baseline tariff and much higher rates for goods from China. Economists are still arguing over whether these tariffs will act as a "secret tax" on consumers by driving up the price of everything from iPhones to avocados.
Actionable Insights for Your 2026 Taxes
Don't wait until April to figure this out. The rules changed fast.
- Check your W-4: With the new overtime and tip exemptions, you might be over-withholding. Talk to your payroll person.
- Track your VINs: If you bought a U.S.-assembled car after late 2024, you can deduct up to $10,000 in loan interest. You’ll need the Vehicle Identification Number for your return.
- Re-evaluate Itemizing: With the SALT cap at $40,000, you might actually come out ahead by itemizing this year even if you haven't in the past.
- Look into Trump Accounts: if you’ve got a newborn, ensure you’ve filed the paperwork to claim that initial $1,000 government contribution.
The trump proposed tax plan is essentially a bet that lower taxes and higher tariffs will spark enough growth to cover the massive deficit. Whether that bet pays off is a question for the historians, but for now, your focus should be on maximizing these new deductions before they potentially shift again in a few years.
👉 See also: Why the Unification of Germany Still Matters Today
2026 Federal Income Tax Brackets (OBBB Permanent Structure)
| Tax Rate | Single Filers | Married Filing Jointly |
|---|---|---|
| 10% | $0 – $12,400 | $0 – $24,800 |
| 12% | $12,401 – $50,400 | $24,801 – $100,800 |
| 22% | $50,401 – $105,700 | $100,801 – $211,400 |
| 24% | $105,701 – $201,775 | $211,401 – $403,550 |
| 32% | $201,776 – $256,225 | $403,551 – $512,450 |
| 35% | $256,226 – $640,600 | $512,451 – $768,700 |
| 37% | Over $640,600 | Over $768,700 |
Stay sharp on the phase-out limits. Many of these "new" breaks are designed to disappear once you cross into the upper-middle-class income tiers. If you’re earning over $150k single or $300k joint, you need to be especially careful about which deductions you’re still eligible to claim.
Make sure to keep detailed records of all tipped income and overtime hours worked. The IRS has signaled it will be issuing more specific guidance in early 2026 on how to claim these specific exemptions without triggering an audit.