If you’ve been scrolling through your feed lately, you’ve probably seen the headlines: Trump removing federal income tax. It sounds like something out of a fever dream or a very aggressive campaign flyer. But as we settle into 2026, the "One Big Beautiful Bill" (OBBBA) has actually shifted the goalposts of American finance in ways most of us are still trying to wrap our heads around.
Is the income tax actually gone? No. Not yet, anyway. But the conversation has moved from "political stunt" to "actual legislative groundwork," and honestly, the math is getting weird.
The Reality of Trump Removing Federal Income Tax
Let's be real: the IRS isn't closing its doors tomorrow. However, the OBBBA, signed back in July 2025, represents the biggest swing at the tax code since, well, the last time Trump was in office. The core of the current strategy isn't a single "delete" button for taxes. Instead, it’s a massive expansion of exemptions paired with a heavy reliance on tariffs to bridge the gap.
The goal that's been floated—replacing the entire $2.4 trillion generated by individual income taxes with tariff revenue—is a massive undertaking. To put that in perspective, current tariffs are projected to bring in about $191 billion for the 2026 tax year. That’s a huge number, but it’s still only about 8% of what the income tax pulls in. Basically, we’re talking about a "math gap" the size of the Grand Canyon.
What’s actually in the 2026 tax code?
If you’re filing for the 2026 tax year, things look a bit different. We haven't seen the total removal of the 1040 form, but we have seen these shifts:
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- The Standard Deduction Jump: For 2026, the standard deduction has climbed to $16,100 for single filers and $32,200 for married couples. That's a decent chunk of change you don't have to think about.
- The "No Tax on Tips" Rule: If you’re a server or a bartender, you can now exclude up to $25,000 in tips from federal income tax.
- SALT Cap Relief: The dreaded $10,000 cap on State and Local Tax deductions? That’s been bumped to **$40,000** through 2029. This is a huge win for people in "high-tax" states like California or New York.
- Auto Loan Interest: You can now deduct interest on car loans for new, U.S.-assembled vehicles—up to $10,000 a year.
It's a lot. Honestly, it feels like the administration is trying to "starve" the income tax system by adding so many loopholes and exemptions that eventually, the revenue it produces becomes negligible compared to the political cost of keeping it.
Can Tariffs Actually Replace the Income Tax?
This is where the experts start getting loud. Steve Ellis from Taxpayers for Common Sense has been pretty blunt, calling the full replacement "not remotely possible." The logic is simple: if you raise tariffs high enough to replace the income tax (we’re talking 60% or higher on almost everything), people just stop buying imported goods. When imports drop, tariff revenue drops.
It’s a bit of a "Catch-22."
The Economic Ripple Effect
The Penn Wharton Budget Model suggests that while the OBBBA might boost long-run GDP by about 1.2%, the tariffs could actually drag down American incomes for almost everyone except the top 1%. Why? Because those tariffs act like a sales tax. When a company pays more to bring in steel or electronics, they don't just eat that cost. They pass it to you at the checkout counter.
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We've already seen this with the 25% tariffs on Canadian and Mexican products that were the talk of late 2025. While those were "paused" for a bit, the threat of them—and the 10% levy on Chinese goods—has kept prices at stores like Costco and Walmart pretty volatile.
The Winners and Losers of the 2026 Shift
Let’s talk about your wallet. If you’re in the middle class, the "One Big Beautiful Bill" is a mixed bag. You might get a $950 tax cut from the new deductions, but if your cost of living goes up by $2,250 because of tariff-driven inflation, you’re actually $1,300 in the hole. That’s the "hidden tax" nobody likes to talk about.
On the other hand, the very wealthy are seeing a massive windfall. The estate tax exclusion has hit $15 million for 2026. If you’re inheriting a massive fortune, 2026 is a great year to be alive. For the rest of us? We’re mostly just trying to figure out if the car loan deduction makes up for the price of eggs.
The Deregulation Push
At the D.C. Bar Tax Conference earlier this month, Kevin Salinger from the Treasury Department argued that this is all about "putting the statute back in the box." He thinks the tax code has become an "academic ivory tower" of complexity. By gutting regulations on stock buybacks and corporate minimum taxes, the administration claims they are freeing up businesses to grow.
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Critics like Natasha Sarin from the Yale Budget Lab aren't buying it. They argue this is "gutting statutes by regulation," creating a level of uncertainty that makes it hard for businesses to plan long-term.
What Most People Get Wrong About the Tax Removal
A common misconception is that "removing federal income tax" means the government just stops spending money. In reality, the 2026 budget projects a deficit increase of nearly $3 trillion over the next decade. We aren't spending less; we're just changing who sends the check to Washington.
Instead of a direct withdrawal from your paycheck, the money comes through:
- Tariffs (higher prices at stores).
- Corporate Excise Taxes (on things like stock buybacks).
- National Debt (borrowing against the future).
Actionable Insights for Tax Season 2026
Since we’re effectively living in this "transitional" tax era, you need to be smart about how you file. Don't just do what you did last year.
- Check Your VIN: If you bought a car recently, make sure it was assembled in the U.S. You’ll need that VIN to claim the new interest deduction.
- Track Your Tips: If you’re in the service industry, keep meticulous records. That $25,000 exclusion is huge, but the IRS is going to be watching for people "inflating" their tip numbers to hide base salary.
- Re-evaluate Itemizing: With the SALT cap raised to $40,000, it might actually make sense to itemize again, even with the higher standard deduction. Run the numbers both ways.
- HSA Compatibility: As of January 1, 2026, even "Bronze" and catastrophic health plans are now HSA-compatible. If you’re on a lower-premium plan, look into opening a Health Savings Account to tuck away some pre-tax cash.
The "removal" of the federal income tax is clearly a long-term play—or at least a very long-term talking point. For now, the 2026 landscape is defined by a weird tug-of-war between lower direct taxes and higher indirect costs. It’s a bold experiment, and whether it works or leaves us with a massive bill in five years is still the $3 trillion question.
Start by reviewing your 2025 year-end pay stubs against the new 2026 brackets to see exactly where your withholding should sit. If the tariffs continue to drive up consumer prices, you might want to adjust your allowances now to keep more cash in your pocket for monthly expenses rather than waiting for a refund next year.