Working Families Tax Cuts Act Kicks In Next Year: 5 Moves To Make Before the Rules Shift
Written by
Laura Beck
Edited by
Molly Sullivan
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The biggest tax overhaul in years just went into effect, and most people have no idea what it means for their paychecks. The Working Families Tax Cuts Act got signed into law back in July 2025, but the real changes hit on Jan. 1, 2026, to impact your 2027 tax filing.
Some provisions kicked in retroactively for 2025, which means your tax refund this filing season could be bigger than you expect. But if you want to get the most out of these new rules, you need to act now before the window closes on certain benefits.
Here are five smart moves to make right away.
Update Your W-4 If You Earn Tips or Overtime
If you make money from tips or overtime, your withholding is probably wrong for 2026. The new law lets you deduct up to $25,000 in tips and $12,500 in overtime from your taxable income, which means less tax should be coming out of your paycheck starting this year.
How to deal with it? Well, talk to your human resources department or payroll person about filing a new W-4. If too much is still getting withheld, you’re basically giving the government an interest-free loan all year. The limits start phasing out once you make over $150,000 (or $300,000 if you’re married filing jointly), but most people earning tips and overtime fall well below that threshold.
Dig Up Your 2025 Pay Stubs Before You File
Those retroactive deductions for tips and overtime apply to money you earned in 2025, which you’re filing taxes on in early 2026. The problem? Your W-2 might not break out tips and overtime separately since employers weren’t required to do that last year.
Go through your pay stubs from 2025 and add up your tip income and overtime pay. You’ll need those numbers when you file your return. For overtime, only the premium portion counts — so if you normally make $20 an hour and get paid $30 for overtime, only the extra $10 per hour is deductible.
Buy That New Car Before 2029 If You’re Financing It
If you’ve been putting off buying a car, 2026 might be your year. The new law lets you deduct up to $10,000 in auto loan interest per year through 2028, but only on new vehicles assembled in the United States.
This isn’t as limiting as it sounds. Toyota builds nearly 2 million vehicles in the U.S. every year. Honda, Nissan and other foreign brands also have American plants. Even some Teslas qualify if they’re assembled domestically.
The catch: You have to buy new, not used. The vehicle needs to weigh under 14,000 pounds (most cars, SUVs and pickups qualify) and be for personal use, not business. The deduction phases out if you make over $100,000 as a single filer or $200,000 filing jointly
With average interest rates around 6.56% on new car loans, deducting that interest could save you real money on your taxes for the next few years. Just make sure to check the vehicle identification number to confirm final assembly happened in the U.S. before you sign.
Open a Health Savings Account If You Have a Bronze or Catastrophic Health Plan
Starting Jan. 1, 2026, bronze and catastrophic health insurance plans finally qualify for health savings accounts. Before this change, only high-deductible health plans met the strict requirements.
If you’ve got one of these plans through your employer or bought on the exchanges, you can now open an HSA and start contributing. The money goes in tax-free, grows tax-free and comes out tax-free if you use it for medical expenses.
For 2026, you can contribute up to the annual limit (check the current year’s numbers). Even better, you can use the money for telehealth services before meeting your deductible without messing up your HSA eligibility. Bonus: If you’re healthy and don’t go to the doctor much, an HSA basically becomes a retirement account with a medical expense bonus.
Max Out Retirement Contributions Before Tax Brackets Change
The 2017 tax cuts were set to expire at the end of 2025, which would have meant higher tax rates for almost everyone in 2026. The Working Families Tax Cuts Act made those lower rates permanent, but it’s still worth checking your retirement contributions now.
If you were holding back on maxing out your 401(k) or IRA because you thought rates might go up, you can relax. The lower brackets are locked in. But that also means there’s no rush to cram extra money into retirement accounts before rates increase — because they’re not increasing.
Take a look at your overall tax strategy and make sure your withholding and retirement contributions make sense with the new permanent rates. You might want to rebalance based on what your actual tax bill will look like going forward.
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