The wait is officially over for millions of American households as the IRS tax season is here — and new rules could affect refunds in ways we haven’t seen in over a decade. Starting today, Monday, January 26, 2026, the Internal Revenue Service has begun accepting and processing 2025 tax returns. While the annual filing ritual often feels routine, this year is anything but ordinary. Following the passage of the One Big Beautiful Bill Act (OBBB) in mid-2025, several retroactive changes have gone into effect. These updates, combined with new IRS digital-first mandates, mean your filing strategy—and the size of your check—could look drastically different this time around.
For many, the most startling news is that the IRS tax season is here — and new rules could affect refunds by potentially freezing them. The agency is moving aggressively away from paper checks, requiring most taxpayers to provide direct deposit information to avoid significant delays. Beyond the logistics, the OBBB has introduced sweeping deductions for overtime, tips, and even auto loan interest. As inflation begins to stabilize in the 2026 economic environment, these tax windfalls could provide a much-needed boost to household liquidity. In this guide, we will break down the essential changes you need to know to maximize your return and avoid common pitfalls.
The OBBB Revolution: What’s Changing in 2026
The primary driver of this year’s excitement is the One Big Beautiful Bill Act. Signed into law on July 4, 2025, many of its provisions were made retroactive to January 1, 2025. Because the IRS did not update withholding tables mid-year, millions of workers essentially overpaid their taxes throughout 2025. Now that the IRS tax season is here — and new rules could affect refunds, that overpayment is coming back as a massive “catch-up” payment.
The $2,200 Child Tax Credit and Higher Standard Deductions
For families, the OBBB has made the expanded Child Tax Credit (CTC) permanent, raising the amount to $2,200 per qualifying child. This credit is now adjusted for inflation, ensuring that parents don’t lose purchasing power as costs rise. Additionally, the standard deduction has seen a significant boost. For 2025 tax returns filed now in 2026, single filers can claim $15,750, while married couples filing jointly can claim a substantial $31,500. These higher thresholds mean fewer people will need to itemize, simplifying the process for the majority of taxpayers.
Tax-Free Tips and Overtime Pay
Perhaps the most discussed provision of the new law is the “No Tax on Tips” and “No Tax on Overtime” rules. Service workers can now deduct up to $25,000 in cash tips, provided their total income stays below $150,000 (single) or $300,000 (married). Similarly, workers who clocked extra hours can deduct up to $12,500 in qualified overtime pay. This is a game-changer for the hospitality and manufacturing sectors, effectively rewarding the “hustle” culture that defined the labor market in 2025.
Practical Strategies: Navigating the 2026 Filing Rules
Knowing that the IRS tax season is here — and new rules could affect refunds is only the first step. You must now navigate a modernized, often more rigid, digital system. The IRS is operating with a reduced staff following recent budget cuts, making self-sufficiency and digital accuracy more important than ever.
The Mandatory Direct Deposit Pivot
The IRS is making a hard push for “Paperless Processing.” If you do not provide direct deposit information on your 1040, the agency may temporarily freeze your refund.
- The CP53E Notice: If your direct deposit is rejected or missing, you will receive this notice. You typically have 30 days to update your info via your IRS Online Account before they eventually resort to a paper check, which could take an additional six weeks.
- Avoid the Freeze: Ensure your routing and account numbers are triple-checked. In 2026, a simple typo doesn’t just delay a check; it triggers a security freeze.
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Maximizing the New “Senior” and “SALT” Deductions
If you are 65 or older, or if you live in a high-tax state, the 2026 filing season offers significant new relief.
- The $6,000 Senior Deduction: This is a new, separate deduction for those 65+ that stacks on top of your standard deduction. It phases out for single earners making over $75,000, so check your Modified Adjusted Gross Income (MAGI) carefully.
- The $40,000 SALT Cap: The hated $10,000 cap on State and Local Tax deductions has been quintupled to $40,000. For homeowners in states like New York, California, and New Jersey, this makes itemizing attractive again for the first time in years.
Actionable Steps for the 2026 Tax Season:
- Gather Your 1099-DA: If you traded cryptocurrency or digital assets in 2025, look for the brand-new Form 1099-DA. The IRS is paying close attention to “Digital Assets” this year.
- Document Your Overtime: Since employers were not required to track “tax-exempt” overtime specifically in 2025, you should have your pay stubs ready to prove your deduction if flagged.
- Use Free File if Eligible: If your household income is below $89,000, you can use the IRS Free File program, which is now open to more than half of all U.S. households.
- Check for Auto Loan Interest: If you bought a U.S.-assembled vehicle in 2025, you can deduct up to $10,000 in interest. Have your loan statement from the lender ready.
How New Rules Change Your Refund Bottom Line
To understand why people are saying the IRS tax season is here — and new rules could affect refunds in a big way, let’s look at two hypothetical families filing their 2025 taxes today.
Scenario: The “Service Industry Professional” (Single)
Imagine Sarah, a server who made $45,000 in base wages and $20,000 in tips in 2025.
- Old Rules: Sarah would have paid tax on the full $65,000 (minus the old standard deduction).
- 2026 Rules: Sarah takes the higher $15,750 standard deduction AND the $20,000 tip deduction. Her taxable income drops significantly.
- The Result: Sarah’s refund is estimated to be $1,100 higher than last year because her employer withheld taxes on her tips all year based on the old, taxable rules.
Scenario: The “Manufacturing Family” (Married with 2 Kids)
The Miller family earned $110,000 jointly, with $10,000 of that coming from Mark’s overtime at the factory.
- Standard Deduction: They claim the new $31,500.
- Overtime Deduction: They subtract the $10,000 in OT pay.
- Child Tax Credit: They claim $4,400 ($2,200 x 2).
- The Result: The Millers see a total tax reduction of nearly $2,800 compared to the previous year’s structure.
Economic Insight: According to theInternational Monetary Fund (IMF), “fiscal stabilizers” like these targeted tax cuts can help buffer households against the “sticky” prices often seen in the wake of global inflationary cycles. While these refunds provide immediate relief, they also signal a shift toward a more consumption-based domestic economy in 2026.
Common Mistakes and Risks to Avoid
- Filing Without Direct Deposit: As mentioned, the IRS tax season is here — and new rules could affect refunds by freezing them. Do not assume a paper check is the default; it is now a “fallback” after a delay.
- Missing the “Warrior Dividend” Rule: If you are one of the 1.45 million active-duty service members who received the $1,776 “Warrior Dividend” in December 2025, remember that this is not taxable. Do not include it in your gross income.
- Overlooking the 1099-K Threshold: The reporting threshold for apps like Venmo or PayPal has been raised back to $20,000. If you sold a few items on eBay for $1,000, you likely won’t receive a 1099-K this year, but you still technically owe tax on any profits.
- Itemizing for No Reason: Even with the $40,000 SALT cap, the $31,500 standard deduction for married couples is so high that most will still find the standard deduction more beneficial. Do the math before spending hours on receipts.
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Conclusion – Key Takeaways & Next Steps
The IRS tax season is here — and new rules could affect refunds in ways that directly impact your 2026 household budget. The OBBB has created a unique “windfall” year where retroactive tax cuts meet outdated withholding tables. While the average refund is projected to near $3,800, the path to receiving that money requires digital diligence. By providing direct deposit information and taking advantage of the new deductions for tips, overtime, and seniors, you can ensure that you aren’t leaving any “free money” on the table.
Ultimately, tax planning is the foundation of long-term wealth building. These refunds offer a perfect opportunity to pay down high-interest debt or bolster your emergency fund. In an economy that rewards the prepared, being early and accurate this tax season is your best financial move.
Are you ready to claim your 2026 refund? Start by logging into your IRS Online Account to verify your direct deposit information. Would you like me to create a “2026 Tax Deduction Checklist” to help you identify every new OBBB credit you might be eligible for this season?
