7 Tax Changes You Didn’t Know Start Next Year

Here's a comprehensive summary of the YouTube video transcript, maintaining the original language and technical precision:

Key Concepts

• Contribution Limits: Maximum amounts that can be contributed to retirement and other tax-advantaged accounts annually.
• Catch-up Contributions: Additional contributions allowed for individuals aged 50 and over to retirement accounts.
• Tax Brackets: Income ranges taxed at specific marginal rates.
• Standard Deduction: A fixed dollar amount that reduces taxable income, which most taxpayers claim.
• Itemized Deductions: Specific expenses that can be deducted from income, such as mortgage interest, state and local taxes (SALT), and charitable contributions.
• Tax Avoidance: Legal strategies to reduce tax liability.
• Tax Evasion: Illegal non-payment or underpayment of taxes.
• Highly Compensated Employee (HCE): An employee who meets certain compensation and ownership tests, often subject to different rules in retirement plans.
• Roth Contributions: Contributions made with after-tax dollars, which grow tax-free and are withdrawn tax-free in retirement.
• Section 415 Limits: Limits on the total contributions that can be made to defined contribution plans.
• SALT Deduction: Deduction for State and Local Taxes.
• Child Tax Credit: A tax credit for qualifying children.
• Dependent Care Credit: A tax credit for expenses incurred for the care of qualifying dependents to allow the taxpayer to work or look for work.

2026 Tax Law Changes: Contribution Limits and Tax Brackets

This section details the updated contribution limits for various tax-advantaged accounts and the adjustments to tax brackets for the upcoming year.

Retirement Account Contribution Limits

• 401(k), 403(b), 457, and Thrift Savings Plan (TSP) Salary Deferrals:
  • 2025: $23,500
  • 2026: $24,500 (an increase of $1,000)
• Total Contributions (Employer + Employee) for Self-Employed and High Compensation Areas:
  • 2025: $70,000
  • 2026: $72,000
• Catch-up Contributions (Age 50 and Greater):
  • 2025: $7,500
  • 2026: $8,000 (an increase of $500)
• Highly Compensated Employee (HCE) Catch-up Contributions: For HCEs making catch-up contributions in 2026, plans are likely to have elected for these to be Roth contributions. Individuals should confirm this with payroll or HR before January.
• Super Catch-up Contributions (Ages 60-63):
  • 2026: $11,250 (no change from previous year)

Important Note: Increased contribution limits do not automatically adjust deferral percentages. Individuals must recalculate their savings rate (e.g., from 10% to 11%) to ensure they are maximizing their contributions and not leaving money on the table.

Individual Retirement Arrangements (IRAs)

• Traditional and Roth IRA Contribution Limits:
  • 2025: $7,000
  • 2026: $7,500 (an increase of $500)
• IRA Catch-up Contributions (Age 50 and Greater):
  • 2026: $1,100 (an increase of $100 from previous years, which felt like $500 increments or $1,000)
  • Total for 50+ in 2026: $7,500 (regular) + $1,100 (catch-up) = $8,600. This is noted as being close to, but not exactly, the HSA family max, potentially causing confusion.
• SEP IRA and SIMPLE IRA:
  • SEP IRA Section 415 Limits: Increased from $70,000 to $72,000, assuming sufficient compensation (25% of comp).
  • SIMPLE IRA Salary Deferrals: Increased from $16,500 to $17,000.
  • SIMPLE IRA Catch-up Contributions: Increased from $3,500 to $4,000.
  • SIMPLE IRA Super Catch-ups (Ages 60-63): Remain at $5,250 per year.

Health and Education Savings Accounts

• Health Savings Accounts (HSAs):
  • Individual Contribution Limits:
    • 2025: $4,300
    • 2026: $4,400 (an increase of $100)
  • Family Contribution Limits:
    • 2025: $8,550
    • 2026: $8,750 (an increase of $200)
  • Note on HSA Limits: The speaker highlights the "quirky" change where the individual limit is no longer exactly half of the family limit (4400 is not half of 8750).
  • HSA Catch-up Contributions (Age 55 and Older): An additional $1,000 is allowed. A strategy mentioned is that if both spouses are over 55, they can each contribute an extra $1,000 by opening a second HSA account.
• Flexible Spending Accounts (FSAs):
  • 2025: $3,300
  • 2026: $3,400 (an increase of $100)
• 529 Plans: Contribution limits have not changed. Gifting limits remain at $19,000.
• ABLE Contributions: Contribution limits have not changed. They remain at $19,000.

Tax Brackets and Standard Deduction

• Marginal Tax Brackets (Indexed for Inflation): All tax brackets have shifted slightly for 2026.
  • Married Filing Jointly (MFJ) Example:
    • 10% bracket: Below $25,000
    • 12% bracket: Up to $100,000
    • 22% bracket: Up to $211,224
    • 24% bracket: Up to $400,224
    • 32% bracket: Up to $518,900
    • 35% bracket: Up to $768,035
    • 37% bracket: Over $768,000
• Standard Deduction: Has continued to increase.
  • Single or Married Filing Separately: $16,100
  • Married Filing Jointly or Surviving Spouse: $32,200
  • Head of Household: $24,150
  • Argument: The speaker believes the vast majority of Americans will likely continue to benefit from the standard deduction due to these increases.

Significant Tax Law Changes (2025-2028 and Beyond)

This section covers broader tax policy changes, including deductions, credits, and specific provisions.

Changes Effective 2025-2028

• Senior Deduction Increase:
  • Up to $6,000 additional deduction per individual.
  • Up to $12,000 additional deduction for couples.
• SALT (State and Local Taxes) Deduction Cap Increase:
  • The previous cap of $10,000 has been increased to $40,000.
  • Impact: This will significantly benefit individuals itemizing deductions in high-tax states. It's advised to re-evaluate itemizing vs. standard deduction due to this change, as it might make itemizing more advantageous and open up other Schedule A deductions (e.g., healthcare, miscellaneous expenses).
• Tax on Tips and Overtime (Limitation):
  • Eligible workers can deduct up to $25,000 of qualified tips.
  • Overtime pay deductions are also included.
  • Specifics: $12,500 for single filers, $25,000 for joint filers for tips.
• Car Interest Deduction:
  • Up to $10,000 deduction is possible.
  • Caveat: The vehicle must be a qualified US-assembled passenger vehicle for personal use. The practical implementation of identifying qualifying vehicles is questioned.

Changes Effective 2025 and Beyond

• Increased Child Tax Credit:
  • Permanently increased to $2,200 per qualifying child starting in 2025.
  • Will be adjusted for inflation annually beginning in 2026.
  • Refundable portion will be adjusted from $1,400 in 2025 and beyond.
• 529 Plan Eligible Expenses: Expanded to include professional licenses, technical training, apprenticeships, and other fees and supplies.
• Electric Vehicle and Energy Credits: Many have been phased out or expired as of September 30th of the current year.

Changes Effective 2026 and Beyond

• Child and Dependent Care Credit Expansion:
  • Maximum credit of up to 50% of claimed expenses.
  • Up to $3,000 per qualifying child, or $6,000 for two or more children.
  • Target Audience: This is particularly beneficial for two working spouses or a working spouse with a full-time student spouse.
• Deduction for Charitable Giving (for Standard Deductors):
  • Even if taking the standard deduction, individuals can claim a front-page deduction of $1,000 for single filers and $2,000 for married filing jointly for charitable contributions.
• "Child IRAs" or "Trump Accounts":
  • These accounts are taxed like IRAs.
  • The advice is to "take the free money" if a child falls within the eligibility window, but to be aware of the tax implications beyond the initial "free money" phase.
• Student Loans:
  • Changes to borrowing amounts and repayment plans.
  • Deadline: July 1st, 2028, for potential adjustments to existing repayment plans.

Conclusion and Key Takeaways

The video emphasizes that tax avoidance is highly encouraged and legal, contrasting it with illegal tax evasion. Understanding the changes in contribution limits, tax brackets, deductions, and credits is crucial for minimizing tax liability. Proactive planning and homework can lead to more dollars remaining in one's possession to grow for the future. The speaker encourages viewers to be proactive with their taxes to take control and minimize payments.