IRS Tax Law Changes for 2026: What Virginia and D.C. Taxpayers Need to Know

Every few years, a piece of federal tax legislation comes along that touches nearly every line of the average tax return. The One, Big, Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is one of those laws. Several of its provisions phased in for the 2025 tax year, but a substantial number take full effect starting with the 2026 tax year — the return most taxpayers will file in early 2027, though some 2026-effective provisions are already shaping estimated tax planning happening right now. Here’s a comprehensive, plain-English breakdown of what changed, organized by who it affects most, with specific notes for Virginia and D.C. taxpayers.

The Big Picture: What OBBBA Did

The OBBBA permanently extended most of the individual income tax provisions from the 2017 Tax Cuts and Jobs Act that were otherwise set to expire at the end of 2025. Beyond simply preventing a tax increase, it also raised several deduction and credit amounts, changed how certain deductions are capped for high earners, and made a number of previously temporary business provisions permanent. The bill touches individual brackets, business deductions, estate planning, and reporting thresholds — which is why so many different types of taxpayers are affected differently.

2026 Individual Income Tax Brackets

The OBBBA made the TCJA’s rate structure permanent, and the brackets are adjusted annually for inflation. For tax year 2026, the marginal rates and thresholds are:

37% for income over $640,600 (single) or $768,700 (married filing jointly)
35% for income over $256,225 (single) or $512,450 (married filing jointly)
32% for income over $201,775 (single) or $403,550 (married filing jointly)
24% for income over $105,700 (single) or $211,400 (married filing jointly)
22% for income over $50,400 (single) or $100,800 (married filing jointly)
12% for income over $12,400 (single) or $24,800 (married filing jointly)
10% for income up to $12,400 (single) or $24,800 (married filing jointly)

Standard Deduction Increases

For 2026, the standard deduction rises to:

$32,200 for married couples filing jointly (up from $31,500 in 2025)
$16,100 for single filers and married individuals filing separately (up from $15,750)
$24,150 for heads of household (up from $23,625)

For most middle-income taxpayers who don’t itemize, this increase alone reduces taxable income modestly year over year.

A New Cap on Itemized Deductions for Top Earners

Starting with the 2026 tax year, the OBBBA introduces a new limitation for taxpayers in the 37% bracket — single filers earning above $626,350 or married couples filing jointly above $751,600. Under this cap, itemized deductions for these top earners are limited to a tax benefit equivalent to 35 cents for every $1 deducted, rather than the full marginal rate. This is a meaningful planning consideration for high-income households in the DMV area, where a significant share of federal, legal, consulting, and executive-level income falls into or near this bracket.

SALT Deduction Cap Raised

The cap on the state and local tax (SALT) deduction — covering income, sales, and property taxes — was raised from $10,000 to $40,000, with this higher cap indexed and extended through 2029 in some reporting. This is one of the most consequential changes for Virginia and D.C. taxpayers specifically, given the region’s relatively high property values and state/local tax burden. Homeowners in Northern Virginia who were previously capped out at $10,000 in SALT deductions regardless of actual property and income tax paid may now be able to deduct significantly more, depending on income level and whether they itemize.

Child Tax Credit Increase

The Child Tax Credit increased from $2,000 to $2,200 per qualifying child for 2025, with the maximum amount now indexed to inflation starting in 2026. The credit begins to phase out at $200,000 MAGI for single filers and $400,000 for joint filers.

New Senior Deduction

Taxpayers age 65 and older can now claim an additional $6,000 deduction, available for tax years 2025 through 2028. This deduction phases out for taxpayers with MAGI over $75,000 (single) or $150,000 (married filing jointly). This is a temporary provision — worth factoring into retirement and Social Security tax planning conversations now, while it’s available, rather than assuming it will remain in place indefinitely.

No Tax on Tips and Overtime

Two new, temporary deductions apply to workers who receive tip income or overtime pay:

Tips: A deduction of up to $25,000 per taxpayer, with phase-out beginning at $150,000 MAGI ($300,000 for joint filers)
Overtime: A deduction of up to $12,500 per taxpayer, with the same phase-out thresholds

These provisions matter significantly for the DMV’s substantial hospitality, restaurant, and service-industry workforce, though eligibility and calculation rules are more nuanced than the headlines suggest — not all “tip income” or “overtime pay” as commonly understood by employees maps cleanly onto the IRS’s technical definitions.

Charitable Giving Changes

Starting with the 2026 tax year, charitable giving rules changed in several ways:

Non-itemizers can now deduct charitable cash contributions — up to $1,000 for single filers, $2,000 for joint filers — even without itemizing. This “above the line” style deduction had not existed in this form since the pandemic-era temporary provisions expired.
The 60%-of-AGI cap on itemized cash donation deductions is now permanent, having previously been scheduled to revert to a lower limit.
A new 0.5% “floor” applies to itemized charitable contribution deductions — meaning a small percentage of AGI must be exceeded before charitable deductions reduce taxable income, a new limitation that didn’t exist under prior law.
A new federal tax credit for contributions to “scholarship granting organizations” was created, though it isn’t available until the 2027 tax year.

Energy Credits Eliminated

Several energy-related credits were eliminated starting with the 2026 tax year, including the Energy Efficient Home Improvement Credit, the Residential Clean Energy Credit, and the Alternative Fuel Vehicle Refueling Property Credit (terminated for property placed in service after June 30, 2026). Homeowners in Virginia and D.C. who were planning energy efficiency upgrades, solar installations, or EV charging infrastructure with these credits in mind should revisit their timeline, since these incentives are no longer available under current law.

1099 Reporting Threshold Increase

The reporting threshold for Form 1099-NEC and certain Form 1099-MISC payments rose from $600 to $2,000, effective for the 2026 tax year, with future inflation adjustments built in. This primarily affects businesses and independent contractors, reducing the volume of required 1099 filings for smaller payments — though the underlying income remains fully taxable regardless of whether a 1099 is issued.

Estate and Gift Tax Changes

For 2026, the federal estate tax basic exclusion amount rises to $15,000,000 per person, up from $13,990,000 for 2025 decedents. The annual gift tax exclusion is $19,000 per recipient, and the generation-skipping transfer tax exemption matches the $15 million estate exclusion level. For DMV-area households with significant real estate or investment holdings, this represents a substantial planning opportunity, particularly for multi-generational wealth transfer strategies that benefit from “use it or lose it” thinking around exclusion amounts that could change again in future legislation.

Alternative Minimum Tax (AMT) Exemption

The AMT exemption for 2026 is $90,100 for single filers (phasing out at $500,000 of income) and $140,200 for married couples filing jointly (phasing out at $1,000,000). These thresholds matter for higher-income taxpayers who may otherwise benefit heavily from the new deduction increases described above, since AMT calculations can offset some of those benefits.

Adoption Credit and Employer Childcare Credit

The maximum adoption credit for 2026 rises to $17,670, up from $17,280 in 2025, with up to $5,120 potentially refundable. Separately, the employer-provided childcare tax credit — a benefit employers can offer, not individuals directly — increased from a maximum of $150,000 to $500,000 (or $600,000 for eligible small businesses), a substantial incentive for DMV-area employers competing for talent in a region where childcare costs are a significant factor in household budgets.

What This Means If You Live or Work in Virginia or D.C.

Federal law changes don’t automatically translate one-to-one into state and local tax treatment. Virginia’s General Assembly and D.C.’s Council each determine independently which federal provisions they will conform to for state and local tax purposes, and that conformity legislation doesn’t always move on the same timeline as federal law. This is particularly relevant for bonus depreciation, certain business deductions, and — as D.C. taxpayers experienced firsthand in 2026 — decisions about whether to tax categories of income (like tips and overtime) that now receive federal relief.

The bottom line: the headline changes described in this article apply at the federal level, but your actual Virginia or D.C. tax bill depends on how each jurisdiction chooses to treat these same provisions locally. This is exactly the kind of two-layer analysis that benefits from a CPA who works across both federal and Virginia/D.C. tax law daily, rather than relying on national tax software that treats every state the same.

Plan Ahead, Don’t Just React

Many of the provisions above — the senior deduction, the tips and overtime deductions, the higher SALT cap — are either temporary or subject to phase-outs that reward proactive planning. Waiting until you’re filing your return in the spring means the tax year in question is already closed; there’s often little that can be done retroactively. A mid-year review with a CPA, particularly around withholding adjustments, charitable giving timing, and equipment or major purchase timing for business owners, tends to produce meaningfully better outcomes than a purely reactive approach.

At Nova Tax & Accounting Services, we help individuals and businesses across Virginia, Maryland, and Washington D.C. translate these federal changes into a concrete plan for their specific situation — not just a list of what changed, but what it means for your return.

Have questions about how these changes affect your specific situation? Call us at (571) 308-6829 or visit Nova Tax & Accounting Services for a free consultation.

This article is for informational purposes only and does not constitute tax or legal advice. Tax laws are subject to change, and individual circumstances vary. Consult a qualified CPA before making tax planning decisions.