What’s New for 2026 & Forward?

Itemized Deduction Limits & Tax Brackets

• A new rule limits how valuable itemized deductions (like charitable gifts) are for very high-income taxpayers.

• It generally affects people in the top tax bracket (37%), but it can also impact some people in the 35% bracket.

• Why? Because itemized deductions are partially added back when calculating the limitation.

Who feels it most:

• High-income taxpayers who give large charitable donations.

🔑Key Takeaway: Big deductions don’t always deliver the full tax benefit for high earners.

Example:

• Income is high enough that part of the deductions are treated as if they were taxed at the highest rate.

• Result: A small portion of itemized deductions is effectively lost.

• This doesn’t eliminate deductions—it just reduces their value.

🔑Bottom Line: You still deduct expenses, but the tax savings may be less than expected.

Information-Reporting Threshold Increase

• Starting with payments made after December 31, 2025, businesses don’t have to issue certain information forms unless payments exceed $2,000.

• The old threshold was $600.

• The new threshold will increase with inflation after 2026.

🔑 Key Takeaway: Fewer small payments will trigger reporting forms like 1099s.

Employer-Provided Meals — What’s Changing?

• Starting in 2026, employers generally cannot deduct:

  • Costs of operating an employee cafeteria, or

  • Meals provided for the “convenience of the employer.”

• There are exceptions:

  • Meals sold at fair market value are still deductible.

  • Certain fishing and fish-processing operations get a full deduction.

🔑Key Takeaway: Free or subsidized employee meals will no longer get a tax break for most employers.

Gambling Loss Limits

• Starting in 2026, gambling losses are only deductible at 90% of the amount lost.

• Losses can still only offset gambling winnings, and only if you itemize deductions.

• Applies to both casual and professional gamblers.

• Since most people don’t itemize anymore, many gamblers already weren’t deducting losses.

🔑Key Takeaway: Even gamblers who itemize will lose part of their loss deduction.

Expanded Childcare Benefits

For Employees

• The tax-free dependent care benefit increases from $5,000 to $7,500 starting in 2026.

• Employees should update salary elections to take advantage.

For Employers

• Employers can offer childcare benefits without reducing employee pay.

• The employer credit for childcare facilities is expanded:

  • 40% credit for facility costs

  • 10% credit for referral services

  • Up to $500,000

🔑Key Takeaway: Families save more on childcare &employers get better incentives to help.

Section 179D Energy Deduction — Ending Soon

• The energy-efficient building deduction (Sec. 179D) is ending.

• Only construction or improvements completed and placed in service by June 30, 2026 qualify.

• Applies to improvements in:

  • Lighting

  • HVAC

  • Building envelope

• Claiming requires Form 7205.

🔑Key Takeaways: Energy efficiency projects must be finished by mid-2026 to get the tax benefit. High earners face limits on deductions, small-payment reporting is eased, some employer perks lose tax benefits, childcare benefits expand, and energy deductions have a firm sunset—timing and planning matter more than ever.

Expanded 529 Plans

• A 529 plan lets families save money for education where the earnings grow tax-free if used for qualifying education expenses.

• Starting after 2025, the list of approved education expenses is expanded.

What’s newly covered - In addition to tuition, 529 funds can now be used for:

• Books and supplies

• Online education materials

• Tutoring and educational classes

• Testing and exam fees

• Educational therapies for students with disabilities

• Dual-enrollment fees (high school students taking college courses)

• Post-graduate credentialing and certification costs

🔑Key Takeaway: 529 plans are no longer just for tuition—they can now cover many everyday education costs.

Higher Annual Limit for K–12 Expenses

• The total amount that can be used each year for elementary and secondary (K–12) expenses is increased.

• The annual limit is doubled to $20,000 per student.

🔑Key Takeaway: Families can use more 529 money each year to pay for private school and other K–12 education costs. 529 plans become much more flexible, making them useful not just for college, but for K–12 education and career credentials too.

New Tax Credit for School Scholarship Donations

Starting in 2027, there’s a new federal tax credit for people who donate to certain Scholarship-Granting Organizations (SGOs) that help fund K–12 education.

How the credit works:

• You can receive a dollar-for-dollar tax credit (not just a deduction) for donations:

  • Up to $1,700 per person each year

  • Up to $3,400 for married couples filing jointly

• Donations must be cash (not property).

• If you can’t use the full credit in one year, you can carry it forward for up to 5 years.

🔑Key Takeaway: This is a true tax credit—your tax bill goes down dollar-for-dollar.

What Counts as a Qualifying Scholarship Organization?

To qualify, the organization must:

• Be a 501(c)(3) public charity

• Provide scholarships to at least 10 students

• Support students attending multiple schools (not just one)

• Use over 90% of its funds for scholarships

• Award scholarships only to students:

  • From lower-income households

  • Who are eligible to attend a public K–12 school

Scholarship funds can be used for approved education expenses, similar to those allowed under education savings accounts (like tuition, books, and related costs).

🔑Key Takeaway: Not every school charity qualifies—only approved scholarship organizations do.

Important State Rules to Know

• States must opt in to this program.

• Each participating state will publish a list of approved SGOs.

• If you receive a state tax credit for the same donation:

  • Your federal credit is reduced by that amount (no double benefit).

🔑Key Takeaway: This credit depends on state participation and coordination with state tax credits. Beginning in 2027, donating to approved scholarship organizations can directly reduce your federal taxes—while helping fund K–12 education for eligible students.