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One big beautiful bill tax provisions take effect

One big beautiful bill tax provisions take effect

Rule Changes
By Newzino Staff | |

IRS Opens 2026 Filing Season with New Deductions for Tips, Overtime, and Seniors

January 30th, 2026: Treasury Officially Terminates All Booz Allen Contracts

Overview

The Internal Revenue Service opened the 2026 tax filing season on January 26 with the first implementation of the One Big Beautiful Bill Act. Signed on July 4, 2025, the sweeping tax law permanently extends the 2017 Tax Cuts and Jobs Act provisions that were set to expire in December 2025, while adding new deductions for tips, overtime pay, car loan interest, and an enhanced deduction for seniors. Taxpayers will encounter a new form—Schedule 1-A—to claim these benefits, and employers are navigating updated W-2 reporting requirements that separately track qualified overtime and tips.

The law also creates Trump Accounts, a new retirement savings vehicle for minors that will begin accepting contributions on July 4, 2026. The federal government will seed each account with $1,000 for children born between 2025 and 2028, while major employers including Steak 'n Shake, Bank of America, Uber, Intel, IBM, and Nvidia have pledged matching contributions. Separately, paper tax refund checks were discontinued on September 30, 2025, under an executive order, pushing the approximately 6% of filers without direct deposit toward electronic payment methods or prepaid debit cards.

Key Indicators

$25,000
Max Tips Deduction
Annual limit on deductible tips for workers in tipped occupations
$12,500
Max Overtime Deduction
Annual limit per individual on deductible overtime pay ($25,000 for joint filers)
$6,000
Senior Bonus Deduction
Additional deduction for taxpayers 65 and older ($12,000 for married couples)
88%
Seniors Tax-Free on Social Security
Share of Social Security recipients who will pay no federal tax on benefits under new rules

Interactive

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Mark Twain

Mark Twain

(1835-1910) · Gilded Age · wit

Fictional AI pastiche — not real quote.

"I observe that the government has discovered a remarkable efficiency: they can now take your money electronically at the speed of lightning, while the money they propose to give back arrives with all the dispatch of a glacier crossing Kansas. As for seeding accounts for the newborns—well, nothing says fiscal responsibility quite like a fellow mortgaging his grandchildren's future while calling it a gift."

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People Involved

Scott Bessent
Scott Bessent
Treasury Secretary and Acting IRS Commissioner (Currently serving dual role after Billy Long's removal)
Billy Long
Billy Long
Former IRS Commissioner (Removed from office August 2025)

Organizations Involved

Internal Revenue Service
Internal Revenue Service
Federal Agency
Status: Implementing new OBBB tax provisions

Federal agency responsible for tax collection and enforcement, now administering the most significant tax code changes since the 2017 Tax Cuts and Jobs Act.

U.S. Department of the Treasury
U.S. Department of the Treasury
Federal Agency
Status: Issuing implementation guidance for OBBB provisions

Federal department overseeing IRS operations and issuing regulatory guidance on new tax provisions.

Booz Allen Hamilton
Booz Allen Hamilton
Government Contractor
Status: All Treasury contracts cancelled January 2026

Major consulting firm that lost all federal Treasury contracts after an employee leaked confidential IRS taxpayer data.

ST
Steak 'n Shake
Restaurant chain
Status: Pledged Trump Accounts matching contributions

Restaurant chain offering $1,000 matching contributions to Trump Accounts for employees' children.

Timeline

  1. Treasury Officially Terminates All Booz Allen Contracts

    Policy

    Treasury Secretary Bessent formally announced cancellation of all 31 Booz Allen Hamilton contracts totaling $21 million, four days after initial reports. Booz Allen stock fell more than 8%.

  2. Steak 'n Shake Pledges Trump Accounts Match

    Corporate

    Restaurant chain committed to matching up to $1,000 in Trump Account contributions for employees' children born 2025-2028, joining Bank of America, Uber, Intel, IBM, and Nvidia.

  3. 2026 Tax Filing Season Opens with OBBB Provisions

    Implementation

    IRS opened the filing season with new Schedule 1-A for claiming deductions on tips, overtime, car loan interest, and enhanced senior deductions. Paper refund checks being phased out.

  4. Treasury Terminates Booz Allen Contracts After IRS Leak

    Policy

    Treasury Secretary Bessent announced cancellation of 31 government contracts with Booz Allen Hamilton, totaling $21 million, after a contractor leaked confidential IRS taxpayer information.

  5. IRS Direct File Discontinued

    Policy

    IRS announced that Direct File, the free tax filing service launched under Biden, would not be available for the 2026 filing season. Treasury cited low usage and high costs.

  6. IRS Discontinues Paper Refund Checks

    Policy

    IRS stopped issuing paper tax refund checks under Executive Order 14247. Taxpayers without direct deposit information now receive CP53E notices and must provide bank details or wait six weeks for a check.

  7. Billy Long Removed as IRS Commissioner

    Leadership

    Trump removed Long after just 52 days in office. Treasury Secretary Scott Bessent assumed the role of acting commissioner.

  8. One Big Beautiful Bill Signed Into Law

    Legislation

    Trump signed the 870-page bill as Public Law 119-21, permanently extending 2017 tax cuts and adding new deductions for tips, overtime, car loan interest, and seniors.

  9. Senate Passes One Big Beautiful Bill

    Legislative

    Senate approved the bill 51-50, with Vice President JD Vance casting the tiebreaking vote. House passed the identical bill 218-214 on July 3.

  10. Billy Long Confirmed as IRS Commissioner

    Leadership

    After months of delay and four acting commissioners, the Senate confirmed Billy Long to lead the IRS.

  11. Senate Passes Budget Resolution

    Legislative

    Senate approved the budget resolution enabling the One Big Beautiful Bill to pass through reconciliation, avoiding the 60-vote filibuster threshold.

  12. Executive Order on Electronic Payments

    Executive Action

    Trump signed Executive Order 14247, requiring all federal agencies to transition to electronic payments, effectively phasing out paper tax refund checks.

  13. IRS Commissioner Werfel Resigns

    Leadership

    Daniel Werfel resigned as IRS Commissioner on Inauguration Day, despite his term not expiring until November 2027. Trump nominated Billy Long as his replacement.

  14. Trump Wins 2024 Election

    Political

    Trump won the presidential election on a platform that included extending the 2017 tax cuts and eliminating taxes on tips, overtime, and Social Security benefits.

  15. Tax Cuts and Jobs Act Signed

    Legislation

    President Trump signed the Tax Cuts and Jobs Act, reducing individual and corporate tax rates. Due to budget reconciliation rules, most individual provisions were set to expire after December 31, 2025.

Scenarios

1

Smooth Implementation, Modest Uptake

Discussed by: Tax Foundation, H&R Block analysis, CPA Practice Advisor

The IRS successfully processes claims for the new deductions without major technical issues. Uptake is modest in the first year as many eligible workers—particularly those in tipped and overtime occupations—are unaware of the new benefits or lack proper documentation from employers. The 2025 transition year, during which employers weren't required to separately report qualified overtime, creates some confusion but manageable filing challenges.

2

Implementation Bottlenecks Delay Refunds

Discussed by: National Taxpayer Advocate, tax professional associations

Reduced IRS staffing (down 25% since February 2025) combined with new form processing requirements creates processing delays. Taxpayers claiming Schedule 1-A deductions experience longer refund wait times, particularly those whose returns require manual review. The elimination of paper checks compounds difficulties for the roughly 6% of filers without bank accounts.

3

Trump Accounts Launch Successfully in July 2026

Discussed by: Treasury guidance, financial services industry publications

The new retirement accounts for minors begin accepting contributions on July 4, 2026. The $1,000 federal seed money for children born 2025-2028 and the Dell Foundation's $6.25 billion pledge to fund accounts for 25 million children in lower-income ZIP codes generate significant enrollment. The accounts function smoothly through approved custodians.

4

Provisions Expire After 2028 Without Extension

Discussed by: Bipartisan Policy Center, Congressional Budget Office

The new deductions for tips, overtime, car loan interest, and the enhanced senior deduction are temporary, set to expire after tax year 2028. If Congress does not act to extend them—or if a different party controls Congress—millions of workers could face effective tax increases when the provisions sunset.

5

Corporate Trump Accounts Contributions Spur Mass Enrollment

Discussed by: Fidelity, Vanguard, Charles Schwab investment guidance

Major employer pledges—including Steak 'n Shake, Bank of America, Uber, Intel, IBM, and Nvidia—combined with the Michael Dell Foundation's $6.25 billion commitment create momentum that drives Trump Accounts enrollment well beyond initial Treasury projections. Financial services firms expand custodial offerings, and by late 2026, the accounts become a standard employee benefit at mid-size and large companies.

Historical Context

Bush Tax Cuts (2001-2003)

June 2001 - May 2003

What Happened

President George W. Bush signed two major tax bills through budget reconciliation: the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. Together they reduced income tax rates, doubled the child tax credit, and cut capital gains taxes. Like the One Big Beautiful Bill, they included sunset provisions to comply with reconciliation rules.

Outcome

Short Term

Tax rates dropped to their lowest level since World War II. Government revenue fell from 20.9% of GDP in 2000 to 16.3% in 2004.

Long Term

The cuts were set to expire in 2010 but were repeatedly extended. In 2012, Obama made most provisions permanent for households earning under $400,000-$450,000 while allowing rates to rise for higher earners.

Why It's Relevant Today

The OBBB follows a similar pattern: major tax changes passed through reconciliation with sunset provisions. The Bush cuts' 12-year journey from 'temporary' to 'permanent' suggests OBBB's temporary provisions may follow a similar trajectory—or face similar political battles over extension.

Tax Cuts and Jobs Act (2017)

December 2017

What Happened

Trump's first major legislative achievement reduced the corporate tax rate from 35% to 21% permanently, while cutting individual rates temporarily through 2025. The bill passed through reconciliation with a 51-48 Senate vote, using sunset provisions on individual tax cuts to comply with budget rules.

Outcome

Short Term

Individual tax rates dropped and the standard deduction nearly doubled. The $10,000 cap on state and local tax deductions created controversy in high-tax states.

Long Term

The looming December 2025 expiration of individual provisions became a central issue in the 2024 election. The OBBB extended these provisions, with most made permanent.

Why It's Relevant Today

The OBBB directly extends and modifies TCJA provisions. Understanding that the 2017 law was always designed to expire illuminates why congressional action in 2025 was framed as urgent—without the OBBB, taxes would have risen automatically for most Americans in 2026.

19 Sources:
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Internal Revenue Service The White House Wikipedia Bipartisan Policy Center Kiplinger Federal News Network CNN Tax Foundation NPR U.S. Department of the Treasury Fox Business KBTX ADP Internal Revenue Service Internal Revenue Service Internal Revenue Service U.S. Department of the Treasury Internal Revenue Service Federal News Network