If you thought 2025 was a whirlwind for taxes, buckle up. 2026 isn’t about slowing down. It’s about a whole new set of rules that could hit your wallet in surprising ways.

The One Big Beautiful Bill Act was signed into law on July 4, 2025.  We have previously discussed the tax related changes of this bill in our blog post focusing on changes that will impact 2025, and another post focusing on the time sensitive expiration of energy related credits.  This edition of our updates will focus on changes included in the law that begin to take effect starting next year.  

Now, before your eyes glaze over at “2026 and beyond,” let’s pause. These aren’t abstract changes that only accountants care about. They’re rules that could hit your wallet, your business, or even your kid’s future savings account. From charitable giving tweaks to something literally called a Trump Account (yes, really), the One Big Beautiful Bill is shaking things up in ways that might surprise you. Think of this as your roadmap to what’s around the corner, explained in plain English so you can see exactly where it matters for you.

Charitable Contribution Deduction

Starting in 2026, OB3 reinstates the cash contribution deduction for non-itemizers of up to $1,000 per year ($2,000 on a joint return).  

However, while on the one hand OB3 gives a bonus deduction for non-itemizers, it takes away from itemizers.  Itemized charitable deductions have been fully deductible without limitation.  Starting in 2026, there will be a “floor” of 0.5% of Adjusted Gross Income (AGI).  Similar to the current medical floor, that means deductions equal to the first 0.5% of AGI will no longer be deductible.

Think of it like a cover charge you have to pay before the real savings kick in. You’ll still get a benefit for giving, but Uncle Sam wants you to chip in a little before the deduction starts working.

Trump Accounts 

OB3 creates a tax-deferred savings account called a Trump Account.  They are intended for individuals under age 18, and generally speaking are subject to the same rules as IRAs.  Under a pilot program, the US Treasury will contribute $1,000 for U.S. citizens born after December 31, 2024 and before January 1, 2029. 

Contributions of $5,000 can be made annually per beneficiary, and will be inflation adjusted starting in 2028.  Contributions can be made by parents, employers, charitable organizations, and governmental bodies.  Employers can make tax-free contributions on behalf of employees.  Generally speaking individual contributions are not tax-deductible and will create a basis that will be tax-free upon withdrawal.  

Investment earnings grow tax-deferred. Investments are limited to mutual funds and indexed ETFs.  Distributions are not permitted until the calendar year in which the beneficiary turns 18.  Once they turn 18, normal IRA distribution rules apply, including possible early distribution penalties if taken before 59 ½.  

In plain English, this is basically a savings account with training wheels. It’s built for kids, but the rules follow them into adulthood.

These changes take effect in 2026, but contributions are not permitted until July 4, 2026.  

Premium Tax Credits

If you’ve been relying on this credit to make your health coverage affordable, this is not something to put on the back burner. Review your plan now so January doesn’t hit you with sticker shock.

Certain health insurance plans purchased through the Affordable Care Act Marketplace have allowed eligible taxpayers to claim a Premium Tax Credit to offset the cost of premiums.  The new law restricts eligibility for these credits, and implements a new verification system that will tax effect in 2028.  

However, an important note is that the American Rescue Plan Act of 2021 had temporarily increased these credits and made them eligible for certain taxpayers whose income was over 400% of the federal poverty line.  OB3 did not address this extension, so it will expire December 31, 2025.  As a result, many taxpayers who had been receiving Premium Tax Credit assistance with health insurance will no longer be eligible effective January 1, 2026.  

Translation: if you’ve been relying on these credits to keep health insurance affordable, now’s the time to check your plan so you don’t get sticker shock in January.

In addition, for taxpayers that had received an overpayment of estimated premium tax credits, the repayment had been limited up to certain income caps.  That limit has been repealed, so now any excess  advanced credit will have to be repaid in full. 

If you have been receiving a Premium Tax Credit, it is important to take this time to evaluate your eligibility for 2026 based on the lower credit phaseouts, and make adjustments now if your current plan will be unaffordable on renewal.  

Health Savings Accounts (HSAs) 

Starting in 2026, bronze level or catastrophic plans purchased on the Health Insurance Marketplace now qualify and make taxpayers eligible for HSA contributions.  

The big limitation with HSA accounts is that the health insurance coverage you have must be considered a High Deductible Health Plan (HDHP).  Many employer provided plans do not qualify.  This expansion under OB3 will allow more taxpayers to take advantage of HSA accounts.  

An HSA is a very powerful planning tool for eligible taxpayers.  Contributions are tax deferred, and eligible distributions are also tax free, making the contributions potentially 100% tax free.  In addition, eligible expenses are not limited to expenses incurred during the year (just after the plan was established).  A good tax strategy is holding receipts, letting the HSA account grow tax free, and then using those saved receipts once the account has had a chance to grow tax free.   

Student Loan Forgiveness Exclusion

OB3 restricts the current law on exclusion from income for student loan forgiveness.  Beginning in 2026, automatic exclusion will only apply in instances of death or disability of the taxpayer.  However, other debt forgiveness exclusion rules may still apply in specific circumstances.  

New Credit of up to $1,700 for Contributions to Scholarship-Granting Organizations (SGOs)

A new provision of the tax code will create a credit of up to $1,700 for cash contributions to qualifying organizations.  This credit will be available starting in 2027.  State participation is required-  States must opt in and provide a list of qualifying SGOs.  

Expanded Educator Deduction

Educators are currently allowed an above-the-line deduction of up to $300 per year for out-of-pocket expenses related to the classroom.  Starting in 2026, in addition to this above-the-line deduction, educators can claim an itemized deduction for eligible expenses.  The definition of educator is expanded to include K-12 teachers, instructors, counselors, principals, or aides in schools that work at least 900 hours during a school year, as well as interscholastic sports administrators and coaches.  

Gambling loss deduction limitation 

Starting in 2026, taxpayers can only deduct 90% of their wagering losses during the tax year (this includes professional gamblers).  This 90% is applied first, and then the 90% limit is further limited by the total amount of wagering gains.  

In other words, even if Vegas wasn’t kind to you, the IRS won’t let you claim every penny of your losses anymore. They want you to keep a little skin in the game.

529 Plan Expansion

Starting in 2026, the amount of distributions that can be used for K-12 expenses is increased from $10,000 to $20,000.  529 qualifying expenses have also been expanded to cover “qualified postsecondary credentialing expenses”, including tuition, fees, books, supplies, and equipment.  This includes apprenticeships registered with the Department of Labor, occupational or professional licenses, and credentials in the Workforce Innovation and Opportunity Act.  

Reduced meal deductions

Businesses have been able to write off 50% of the costs of meals provided for the convenience of the employer.  This includes meals during company meetings and food and beverages provided in company cafeterias or break rooms.   Starting in 2026, these expenses will be fully non-deductible.  

The 50% deduction will remain in effect for meals with clients and business travel.  

So, the IRS just took snacks off the company tab, but you can still write off dinner with a client. The water cooler might not count, but that business lunch still does.

Form 1099 reporting threshold

The reporting threshold for businesses to issue 1099s for contractors is increased from $600 to $2,000, with this threshold inflation-adjusted going forward.  For 2025 1099s will still need to be issued at the $600 level, but 2026 going forward will be at a higher level.  Please keep in mind, any self employed income received is taxable, whether you receive a 1099 or not.  This only impacts the requirement to prepare a 1099.  

As you could see from the first two articles in this series, this is a complex law with many moving parts that will impact tax planning both now and going forward.  Next year will bring a new wave of changes, but now is the time to start considering the impact of these changes and make changes where appropriate.  As always, we stand ready to help if you need any assistance interpreting how these changes will affect you or your business.

How Watson & Associates Can Help

At Watson & Associates, we know tax law can feel like it’s written in another language, especially when bills like OB3 shake things up year after year. That’s where we step in to help you sort through what really matters for your family or your business and turn tax changes into planning opportunities. 

If you’re wondering how these 2026 rules might hit your bottom line, now’s the time to start the conversation. We’re here to walk you through it, answer your questions, and make sure you’re set up for success no matter what new twists OB3 brings next.