Year-end tax moves for 2026: how to use the new deductions for tips, overtime, seniors and state taxes

With less than three months left in 2026, taxpayers still have time to act on their 2026 returns, which will be filed in 2027. This is the second tax year under the law signed July 4, 2025, as Public Law 119-21, commonly known as the One Big Beautiful Bill Act and now called the Working Families Tax Cuts on IRS.gov. Several deductions it created apply from 2025 through 2028 and can be claimed whether or not you itemize, so it pays to check where you stand before Dec. 31.

The 2026 numbers at a glance

These figures come from the IRS's 2026 inflation adjustments and Publication 505 (2026). MAGI means modified adjusted gross income.

1. Check your withholding now

If you expect to claim one of the new deductions, the tax withheld from your paychecks may be higher than you need. Publication 505 says you can account for the deductions for qualified tips, overtime, car loan interest and the senior deduction in Step 4(b) of Form W-4. The IRS Tax Withholding Estimator can help you work out the numbers. Changes take effect only on future paychecks, so the earlier you adjust, the more pay periods it can affect.

2. If you earn tips or overtime, know what qualifies

According to the IRS fact sheet, qualified tips are voluntary cash or charged tips received from customers or through tip sharing, in occupations the IRS lists as customarily and regularly receiving tips on or before Dec. 31, 2024. The list is at IRS.gov/TippedOccupations. Self-employed people in a specified service trade or business are not eligible, and neither are employees whose employer is in one.

The overtime deduction covers only the extra pay above your regular rate that the Fair Labor Standards Act requires, such as the "half" in "time-and-a-half," not your whole overtime paycheck.

For 2026, Publication 505 says qualified tips should be reported on Form W-2 in box 12 with code "TP," and qualified overtime in box 12 with code "TT." Both deductions are figured on Schedule 1-A. To claim either one you need a valid Social Security number, and married couples must file jointly. Review your year-to-date pay stubs now and raise any reporting questions with your employer before W-2s are issued.

3. Seniors: watch your income

For 2026, people born before Jan. 2, 1962, may claim an enhanced deduction of up to $6,000, or $12,000 if both spouses qualify. The IRS says it is in addition to the existing additional standard deduction for seniors. The deduction shrinks once MAGI tops $75,000 ($150,000 joint). Year-end moves that raise income, such as converting a traditional IRA to a Roth or selling investments at a gain, can reduce it if they push you over the threshold, so run the numbers first.

4. Decide whether to itemize

The higher SALT cap of $40,400 may make itemizing worthwhile for some households that pay large state income or property taxes. Compare your likely itemized deductions with your standard deduction before deciding whether to pay deductible bills in December or January. The new tip, overtime, senior and car loan deductions are available either way. The IRS also notes that the law limits the tax benefit of itemized deductions for taxpayers in the top 37% bracket.

5. Charitable giving has new rules this year

Two changes start in 2026, according to IRS Topic 506 and Publication 505:

• If you do not itemize, you can deduct up to $1,000 ($2,000 if filing jointly) of cash contributions to certain qualified organizations.
• If you itemize, you can deduct only charitable contributions that exceed 0.5% of your adjusted gross income. In a hypothetical example, a household with $100,000 of AGI would get no deduction for its first $500 of gifts.

Keep a bank record or written receipt for every cash gift, and a written acknowledgment from the charity for any single contribution of $250 or more.

6. Retirement contributions and required withdrawals

The 2026 limits are $24,500 for employee contributions to 401(k), 403(b), governmental 457 plans and the Thrift Savings Plan. Workers 50 and older can add a catch-up of $8,000, and those aged 60 to 63 have a higher catch-up limit of $11,250. Because workplace contributions come out of your paychecks, changes need to happen before your last 2026 paycheck.

The IRA limit is $7,500, or $8,600 if you are 50 or older. The IRS says IRA contributions for a year can be made until the due date of that year's return, not including extensions, so 2026 IRA contributions can be made into 2027.

If you are already taking required minimum distributions, the IRS says that for each year after your required beginning date, the RMD must be withdrawn by Dec. 31. For an IRA, the first RMD is due by April 1 of the year after you turn 73.

7. Bought a new car? Keep the paperwork

Interest on a loan taken out after 2024 to buy a new vehicle for personal use may be deductible if the vehicle's final assembly occurred in the United States. You must include the vehicle identification number on your return, and lenders report the interest you paid to the IRS. Keep your loan documents and the year-end statement from your lender.

Tax rules apply differently to every household, and this article is general information rather than tax advice. Before making large moves, check the details on IRS.gov or with a tax professional.