Your 2026 paycheck might look a little bit bigger. Thanks to some exciting new tax reforms set to take effect next year, you could see more money in your pocket each month. These reforms, part of the 2025 GOP tax package, could potentially boost your take-home pay—if you update your federal tax withholding accordingly.
So, what’s all the fuss about? Well, it’s all about the tax breaks that could be available to you, and how reviewing your W-4 Form can unlock these savings.
When it comes to tax withholding, it’s what your employer takes out of your paycheck to cover your federal taxes. Most workers fill out this form when they start a new job, but the IRS recommends reviewing it annually to avoid leaving money on the table. After all, if you’re eligible for new tax breaks, waiting until the end of the year to claim them could mean you miss out on monthly savings—and give the government an interest-free loan of your hard-earned cash.
If you want to keep more of what you earn as you go, here are three key tax reforms in 2026 that could help boost your paycheck—assuming you qualify and update your Form W-4.
1. Tip Income Deduction: A New Break for Tipped Workers
Tax deduction amount in 2026 (maximum): $25,000
Average estimated tax savings in 2026: $1,400
Good news for workers in the hospitality, food service, and other tip-based professions—2026 could bring a brand-new tax deduction for your tips. This deduction, part of the new tax reform package, will be available from 2025 through 2028. For 2026, the Tax Policy Center estimates you could see an average savings of $1,400—just over $100 a month—if you qualify.
But here’s the catch: the deduction applies only to “qualified” tips. These include voluntary cash tips and those charged through a card payment system (credit card, PayPal, etc.). Payroll taxes still apply, meaning this deduction won’t reduce your Social Security or Medicare tax obligations.
Your deduction starts to phase out if your modified adjusted gross income (MAGI) exceeds $150,000 for single filers, or $300,000 for married couples. For every $1,000 you exceed these limits, your deduction is reduced by $100. The deduction phases out completely once your MAGI hits $400,000 (single) or $550,000 (married).
Eligible professions include:
- Wait staff and bartenders
- Chefs, cooks, and food servers
- Dancers, musicians, and content creators
- Hairstylists, pet caretakers, and tutors
To get the full benefit, make sure to estimate your qualified tip income for 2026 and adjust your withholding accordingly. If you’re unsure about your tip income, last year’s tax return can be a good starting point.
2. Overtime Pay Deduction: Get More Back for Your Extra Hours
Tax deduction amount in 2026 (maximum): $25,000
Average estimated tax savings in 2026: $1,400
If you’re one of those who regularly works overtime, this new tax deduction could mean extra savings in 2026. The federal overtime pay tax break, available for non-exempt employees, will also last from 2025 through 2028.
The deduction is worth up to $12,500 for single filers and $25,000 for joint filers, with an average tax savings of around $1,400 per household. But remember, to qualify, you must work more than 40 hours a week and earn overtime pay under the federal Fair Labor Standards Act (FLSA).
As with the tip deduction, there are income phase-out rules. For single filers, the deduction begins to phase out if your MAGI exceeds $150,000, and for married couples filing jointly, the phase-out starts at $300,000. The deduction is reduced by $100 for every $1,000 over the threshold, and it’s entirely phased out once MAGI hits $275,000 for single filers or $550,000 for joint filers.
To estimate how much overtime pay you’ll get in 2026, check your pay stubs or ask your employer. Keep in mind that the overtime deduction only applies to the “extra” half of your time-and-a-half pay, not your total overtime wages.
3. SALT Deduction: A Higher Cap on State and Local Taxes
Tax deduction amount in 2026 (maximum): $40,400
Average estimated tax savings in 2026: $4,722 to $14,974
The SALT (State and Local Tax) deduction has been a hot topic since it was capped at $10,000 by the Tax Cuts and Jobs Act. But the 2025 GOP tax bill offers some relief by temporarily raising the SALT deduction cap, and the IRS projects this cap will increase by 1% in 2026, from $40,000 to $40,400.
For itemizers, this could lead to significant savings. Taxpayers in high-tax states who pay substantial state and local taxes might benefit the most, with potential savings ranging from $4,722 to $14,974, depending on how much you pay in SALT.
However, there are phase-out thresholds for high earners. If you’re a single filer with a MAGI of $505,000 or more, or a married filer with MAGI exceeding $550,000, your SALT deduction starts to phase out. For every dollar your income exceeds these thresholds, your SALT deduction decreases by 30 cents. And for those in the highest tax brackets, the 35% rule applies, limiting the amount of tax savings you can claim from itemized deductions.
If you’re considering adjusting your withholding for SALT, the deduction largely depends on how much state and local taxes you pay. Make sure to check if itemizing your deductions is the right choice for you before making changes.
Additional 2026 Tax Breaks to Watch Out For
Aside from these three major reforms, several other tax breaks could slightly impact your withholding, including:
- Car loan interest deduction: Worth up to $10,000 for new vehicles, with average savings of $400 to $500.
- Bonus deduction for seniors (65+): Eligible individuals could see up to $6,000 in deductions if they meet income thresholds.
Make sure to wait for the finalized 2026 W-4 Form, which the IRS is expected to release by the end of December. If you’re planning to adjust your withholding based on these or other deductions, submitting the final form to your employer after it’s published will ensure you’re in the clear.
Final Thoughts
While these new tax breaks have the potential to boost your 2026 paycheck, remember that tax savings depend on your eligibility and specific circumstances. Double-check that you qualify before submitting changes to your withholding. If you’re unsure, consulting a tax professional or using the IRS Tax Withholding Estimator tool could help ensure you’re maximizing your savings.
By updating your W-4 and taking advantage of these changes, you could be seeing more money in your pocket all year long!
