Here’s how the Working Families Tax Cuts will affect you in the new year

As 2026 begins, the most impactful parts of the Working Families Tax Cuts law are officially in effect, and they’re already changing what families see on their pay stubs and what they will get back after filing taxes.

After years of rising costs and taxes, the new year is starting with real relief for everyday Americans.

Leaving uncertainty behind

For years, families knew the 2017 tax cuts were set to expire — leaving many unsure what their taxes would look like. As that expiration drew closer, many braced for higher taxes and fewer deductions.

Thanks to the Working Families Tax Cuts, that uncertainty is in the rearview mirror.

This crucial legislation permanently extends key tax relief and introduces additional deductions, providing families and businesses with confidence as they plan for the year ahead.

Here’s what it means in 2026:

• Lower individual tax rates are permanent. The seven tax brackets created in 2017 aren’t going away, meaning middle- and low-income Americans pay less in taxes.
• The higher standard deduction is locked in. For 2026, it’s $32,200 for married couples and $16,10 for single filers — and it’s set to adjust with inflation every year.

That’s a cleaner, simpler tax code for businesses and families to follow, while also keeping more of what they earn every year.

No one can say that this law ignores the middle class or fails to address the affordability crisis.

A New Year’s reward for extra work

If your New Year’s resolution involves working harder or picking up extra hours, Washington is no longer penalizing you for it.

Starting this month:

• Tips aren’t taxed up to $25,000 for eligible workers.
• Overtime pay can be deducted up to $12,500, or $25,000 for joint filers.

For once, those who have to work more to get by will be able to keep more of what they earn.

Crucially, this incentivizes hard work.

What’s better is that it isn’t just about refunds in April — IRS withholding rules mean many workers are already seeing bigger take-home pay.

Permanent relief for families and seniors

The start of 2026 also brings relief to families facing long-term costs.

The Working Families Tax Cuts include:

• A $2,200 child tax credit per child, now indexed to inflation.
• The new “Trump Account,” which allows families to save up to $5,000 per year for children under 18. Children born between 2025 and 2028 will even receive a $1,000 federal contribution.
• A new $6,000 senior deduction for filers aged 65 and older, helping retirees start the new year with more protection against inflation.

These policies aren’t quick fixes but rather encourage long-term planning and support Americans navigating major financial shifts.

Smarter choices in health care and transportation

The law also updates how Americans manage everyday expenses in 2026.

The federal marketplace includes more health savings account plans. And HSA funds are now available to be used for direct primary care, allowing more Americans choice and flexibility in health care spending.

Additionally, filers can save on car loan interest by deducting up to $10,000 for U.S.-assembled vehicles.

The bottom line: Fighting for affordability in 2026 and beyond

New years are often synonymous with fresh starts.

This year, the Working Families Tax Cuts deliver something rare from Washington: a fresh start that actually shows up in your bank account.

By making tax relief permanent and rewarding hard work, the Working Families Tax Cuts provide families and small businesses with greater certainty, financial stability, and control as they prepare to pursue the American Dream in 2026.

As your first paychecks arrive this year and you look at your withholdings, make sure Washington hears from you.

Join us in thanking lawmakers who supported permanent relief for working families and small businesses this year by signing our letter.

Make your voice heard by joining AFP’s grassroots army as we push for policy wins in 2026 and beyond.