What to know when filing 2026 tax return

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[00:00:00]
spk_0: It's the 21st show. I'm Brian Mackey, and the 2026 tax season officially starts on Monday.

[00:00:14]
spk_1: I paid my taxes over a year ago. Dad, what is it, sweetie? Did you see a scary picture in your picture book? That was last year's taxes. You have to pay again this year. No, because you see, I went ahead and [year was I was counting forward from the last previous]. Don't—

[00:00:37]
Brian Mackey: Uh, you gotta do it every year, Homer. Uh, what's supposed to be a fairly straightforward routine every year has been upended. This time around, it's because of changes to the federal tax code brought about by the One Big Beautiful Bill Act. You might recall the OBBBA called that for, uh, I should — it called for the elimination of taxes on tips, overtime and car loan interest, among other things. So, for the rest of the hour today, we're gonna talk about how you can navigate the changes when you file your taxes, April 15th. Joining us now to talk more about this is Tom O'Saben, director of tax content and government relations with the National Association of Tax Professionals. Tom, welcome back to the 21st show.

[00:01:18]
Tom O'Saben: It's great to be here today. I don't know that I can one-up Homer Simpson, but I'll do my best.

[00:01:22]
Brian Mackey: Listeners, you can call in just for the next 14 minutes or so, 800-222-9455 if you have tax filing questions, 800-222-9455. So, let's start with uh when to file your taxes, right? Cause it, it officially starts Monday, but there's an argument, I guess to be made to not file so soon this year. Why is that?

[00:01:45]
Tom O'Saben: Well, really, when you get down to it, I'll, uh, I'll quote my, my sainted grandmother who used to say haste makes waste. And if we, if we rush into things we can, we can make mistakes and we're gonna find that again, like you mentioned at the beginning, there are differences this year that you, you're not gonna find by looking at last year's return. You know, I've been a tax professional for more than 35 years and when I, when I do someone's return, the first thing I do is look at last year. So I would advise people to do that. However, some of the deductions you already mentioned, uh, you're not gonna find those on a 2024 return because they just were introduced with the One Big Beautiful Bill Act as you mentioned in July of this year. So they're gonna be new deductions. So with new deductions come work you should do to get your information together and realize you've got changes that need to be applied this year.

And then the second thing would be, interestingly enough, even though the filing season does open on Monday, the 26th, the idea of getting informational documents to a taxpayer like W-2s, 1099s and such, they're only required to be out by the end of January. Now this year, the end of January, January 31st falls on a Saturday, so the requirement to have that information available falls to Monday, February 2nd, Groundhog Day. So that being said, another point I want to make is that there's no requirement out there that information documents have to be sent to you through the U.S. mail. You in fact may have to go to websites or portals in order to download your information. A perfect example here in the, here in the state of Illinois is those taxpayers who perhaps received unemployment benefits, and when they signed up for those unemployment benefits, they may have said they wanted paperless contact, and with that paperless contact that meant all contact, including the information about the unemployment they may have received during the 2025 year and the withholding that went along with that.

So my first advice would be again from grandma, haste makes waste. So think about what went on in your life last year and before you begin to consider filing that return, do you have all of your documentation and more importantly, do you have questions about the best way to approach the filing season?

[00:03:53]
Brian Mackey: OK, so let's get into some of those changes then that that people are gonna be finding and we have a lot to cover here, so maybe we can be brief on these. But like taxes on tips, overtime, car loan interest, I mentioned, these are taxes that were eliminated. What, what sort of paperwork, how do people actually realize that when they're filing their forms?

[00:04:09]
Tom O'Saben: Again, that's a great question, and the, the part that's very, very confusing and difficult is the fact that 2025 is being permitted by the IRS to be a transition year, meaning that using best effort to come up with these deductions as opposed to something that supports the deduction you're taking. So you're right, there's a new schedule this year called Schedule 1A. That's where these deductions are going to happen, the, the tip deduction, the overtime deduction, the senior deduction. The deduction for interest on a car loan all happen on this form or Schedule I should say 1A, which is new this year. So with that said, it's also important to realize that these deductions are not required to be part of itemized deductions. They are going to be a reduction to taxable income, so any taxpayer could be eligible for these deductions.

Now that being said, let's talk about, you know, the deduction for tips or overtime. To support that deduction, we're gonna have to have documentation such as year-end paystubs that would be a good place to start to see what in fact happened in terms of the tips that were reported to the employer either through, uh, you know, the, the normal W-2 payroll system or that may have been reported uh through government forms and the same thing with overtime and what, what is that definition of overtime and I wanna spend just a minute on that. I know we have limited time.

But there are lots of different agreements that people have with their employer or there be state laws. But for overtime, for example, it's overtime that follows the Fair Labor Standards Act prescribed by the federal government, which means the premium over 40 hours in a work week for hours worked over 40 hours. So you may have someone who, let's say they work 35 hours but because of a collective bargaining agreement or state law they may be eligible for overtime after 35 hours. That's fine for payroll but for the deduction on your federal tax return it's only gonna be the, the premium amount on those hours in excess of 40, so the first thing for documentation I would say would be paystubs or if you're in a situation where you're tracking tips as a self-employed person, say a hairstylist or a manicurist, that you actually keep good records and documentation as to what that number is and where it came from.

[00:06:18]
Brian Mackey: That's really interesting about the, uh, you know, maybe I'll negotiate with my employer to work one hour a week and the rest will be considered overtime. Government's going to say no on that for tax purposes. All right, so what about there's tax credit changes too, right? Some going up, some going away. What's happening there?

[00:06:35]
Tom O'Saben: One of the biggest ones would be the child tax credit. So the government did not change the rule of eligibility. We need to have a child under the age of 17 as of the end of the year, and it's going from $2,000 to $2,200. So a $200 increase doesn't sound like much, but that's, that's a $200 direct reduction in tax liability. So that's, that's pretty good there.

We have, we have changes in the credits, for example, energy credits. They're not gone in the beginning of 2025. They're actually gone after the end of 2025. So if people bought an electric vehicle that qualified, for example, and they purchased it by September 30th, they could have a credit for that vehicle. If they did improvements to their home, energy improvements such like exterior windows, exterior doors, insulation, a new furnace, all of those items, if they got those installed by the end of the year, they could still be eligible for credits. Those circumstances where maybe the contractor just couldn't get to you yet, uh, unfortunately, the new windows are being installed in 2026. There will no longer be an energy credit there, but that being said, there could be energy credits in, in 2025.

[00:07:42]
Brian Mackey: Let me take a moment to remind listeners, if you're just joining us, it's the 21st show. We're talking about the 2026 tax filing season. It's gonna be a little different this year because there have been some significant changes made by federal law, the One Big Beautiful Bill Act. Uh, we're talking with Tom O'Saben, director of tax content and government relations with the National Association of Tax Professionals. So, this year, senior citizens can claim higher deductions. What's happening there?

[00:08:08]
Tom O'Saben: And that's really a good question. I'm really glad you brought it up. It was next on my list. So there's a lot of misinformation out there in the, in the media that the law made Social Security tax-free, not true. Social Security may still be includeable as taxable income depending on other income on your return, but just as you mentioned, there is a new deduction that's offered this year called the senior deduction, and all you have to be for this deduction is age 65 or over by the end of the year. It's $6,000 or for a married couple could be $12,000 if both of them are at least age 65 as of the end of the year. And by the way, they don't have to be collecting Social Security in order to realize this benefit. They in fact just need to be at least age 65 or over by the end of the year.

I'd like to mention all these deductions we're talking about, these new ones that have come out that are that are done on the Schedule 1A of the 1040, they are temporary deductions. They're only going to exist 2025 through 2028. Think about President Trump's current term. They will expire along with his term.

[00:09:12]
Brian Mackey: Another thing that's changing this year is the IRS ending its uh file for free pilot program. What's the story there and what options do people have with that uh ending of that program?

[00:09:25]
Tom O'Saben: Right, that's a good point too. In fact, I, uh, I got myself confused in some other conversations when I saw the IRS coming out and they talked about the options for free file and so we have to understand the, the verbiage there and you actually hit it right on the head. What happened is the pilot program that the IRS developed called Direct File, uh, is has ended. It's not available in 2025, but what is available is Free File, and that's the option depending on people's income level or the complexity of their return that actually the IRS has contracted with outside vendors. So you're not going directly to the IRS. You may end up with one of the outside vendors who provide software and have a circumstance where you can file for free through that vendor, but it won't be the same thing as the Direct File system, which I believe we had for just two years and is now is now gone. But the Free File system does allow folks to electronically file their returns again given income limits, I don't have those right here in front of me or complexity of the return, but certainly people especially who are ready to file on Monday may consider using the Free File options but realize they're not going to find the Direct File system that the IRS had for the last couple of years. It's not there in 2025.

[00:10:38]
Brian Mackey: One other thing that could have tax consequences for people in the future are these Trump accounts. This is the idea that there's a program where the federal government's going to contribute, I guess, $1,000 to a savings account for U.S. citizens born between 2025 and the end of 2028. That's just the government contribution part, I guess these accounts are going to exist more broadly than that for any youth. What's, what's the story with that? What are Trump accounts?

[00:11:05]
Tom O'Saben: Sure, and they are brand new under the One Big Beautiful Bill Act as well. The number one takeaway for your listeners would be if you've had a child born in 2025, you wanna sign up for one of these. There is no income limit. You can either file a form in paper. The the form number interestingly enough is 4547, which I think the IRS actually was talking about Trump's first term and Trump's second term, but interestingly enough, 45 or 47. You can go to trumpaccounts.gov and set up an account online, or you can have it as an attachment to the return you filed this year.

One thing to state as we go through this, I don't see or haven't seen any requirement that the Trump account be opened as a process of filing your 2025 return, so I don't see an April 15th deadline. However, again, you can go to trumpaccounts.gov or you could go ahead and download the form, fill it out, sign it, mail it in a paper, and children that are born now, uh, you know, 2025 through 2028, there will be $1,000 we'll call it seed money, put in there by the Treasury, and those are starting to be funded. I believe it's gonna be sometime this summer after July 10th, I believe is the date here in 2026.

But I think the, the, the smart thing to do would be, especially if you've had a child born in 2025, is why leave $1,000 on the table. These accounts will be treated much like IRAs. There won't be a deduction for the money going in, but the accounts will in fact grow tax-free. My understanding is up to $5,000 a year can be put into these accounts. And they can be open for any, any child under the age of 18, but I think the important takeaway for our conversation today is if you had a child born in 2025, you ought to go ahead and open one of these accounts and go ahead and have that money put in from the Treasury.

[00:12:51]
Brian Mackey: You know, is this, and just briefly on this point, it's called a Trump account. Trump is a very polarizing figure. You know, Republicans used Obamacare as a way to like get people to not like that program. Do you think that people, even if they're not, you know, into Trump as a politician, is this still a worthwhile thing for people to look at?

[00:13:08]
Tom O'Saben: I believe it absolutely is and you're, and you're correct in, in your, in your characterization of Trump in general. I just had a conversation with family members over the weekend and uh you know, one person who wasn't there, you know, had a child in 2025 and actually, you know, the person said, well, I don't think he can bring himself to, you know, go ahead and fill out any documentation that has the name Trump on it. So we, we get into a polarizing situation and we let politics come into play, but the unfortunate thing is then we, then we actually pass on the opportunity, you know, for $1,000 to be placed into an, to an account, you know, by that. I think we, I think we make a mistake by letting politics influence our financial decisions.

[00:13:49]
Brian Mackey: Last thing, just about 30 seconds left, um, direct deposit. I understand there's a major push, uh, for those who are still prefer getting a paper check, what, what does that mean for them?

[00:14:00]
Tom O'Saben: This is really an important point. I'm glad you brought it up. President Trump signed an executive order in March of last year, so right after he was inaugurated, where the government will stop issuing paper checks, and that was supposed to begin after September 30th. And along with that executive order is that the Treasury will stop accepting paper checks for submission. Now they still are, but I am hearing from our membership that there are limited places throughout the country. For example, when people were sending in fourth quarter estimated payments on January 15th that a couple of service centers would not accept paper checks.

That being said, let's go ahead and get direct deposit set up when you file your tax return. I am told that if you file a return this year and you have a refund coming and you don't provide any direct deposit information, the IRS will send you correspondence that will end up delaying your refund from eight to 12 weeks. So the simple advice would be get a bank account. Let's get away from operating just in a cash economy. There's lots of protections that you can gain from that. And also some banks are out there. They'll actually have incentives.

[00:15:05]
Brian Mackey: All right, we're gonna have to leave it there. Tom O'Saben, get a bank account because, uh, direct deposit is the way this year. Tom O'Saben with the National Association of Tax Professionals, thanks for your time. That is it for us today. We are back on Monday. The 21st show is a production of Illinois Public Media. I'm Brian Mackey. Thanks for listening. We'll talk to you again, again on Monday.