Taxes 2026: New policy changes for child tax credit, tip deductions, and seniors

Tariffs and stubborn inflation have made it a lot more expensive for Americans to deck the halls in 2025. Let's check in on what the tax picture looks like for Americans trying to keep up to budget in 2026. Joining us is Erica York, Tax Foundation Vice President of Federal Tax Policy. Hi, Erica. Thanks for being with us. Let's break down the impact of the big, beautiful bill that was passed this year. And what does that mean for families in 2026? Let's start off with the Child Tax Credit, for example. Yeah, the Child Tax Credit received a $200 boost to the maximum amount. And recall that it was scheduled to be cut in half going forward starting in 2026 because temporary changes from 2017 that boosted it were going to expire. So lawmakers extended that underlying Child Tax Credit and gave it an extra boost. And they made that change effective for 2025. So when parents go to file their taxes here in early 2026, when the filing season opens, they'll get that boost on the tax return that they file for 2025. And how about for somebody that is working as a service worker? What does the money picture look like for them? Yes. So people who earn tipped income will be able to deduct that on this tax return that they file now. That was another one of those somewhat retroactive changes. So that took effect for 2025. And taxpayers will benefit from that. They will also benefit if they earn income through overtime pay. Both of those will be active when people file their tax returns. And so they can expect to see a larger tax refund or even a smaller tax liability due if they have those types of income. And what about seniors? Are they seeing a tax benefit for 2026? Yes. There is a new $6,000 deduction per senior. So that is available to seniors regardless of whether they itemize or take the standard deduction. As long as they meet the income thresholds on that, which prevents higher income seniors from benefiting, they will get to take that $6,000 deduction per filer. And that's one of the larger tax benefits that's available for this upcoming filing season. And Erica, we just got lighter consumer confidence figures for December. And a significant part of that has to do with the effects of tariffs. What's your calculus on how much tariffs are costing households? We have estimated that this year in 2025, per U.S. household on average, the tariffs amount to about an $1,100 burden. And that's true whether the tariffs show up in final consumer prices or whether they remain a hidden tax on the economy. The question is not do consumers, do workers, do businesses pay the tariffs? It's a question of how do they do that? Are tariffs remaining a hidden tax at the business level? So weighing down on hiring, weighing down on wage growth, or are they more obviously being passed forward to consumer prices? In both cases, it's Americans who pay. And we estimate this year in 2025, that's an $1,100 burden. It grows to about $1,400 next year if the tariffs remain in effect for the full calendar year. So there's been some tariff exemptions this year, but your research says not so on holiday decorations, specifically Christmas ornaments and lights. So we're looking at a graphic right now. We want to show you this graphic that customs duties on Christmas lights alone have risen to $45 million this year. Erica, this is supposed to be, you know, a happy time of the year. How is this, do you think, weighing on people's household finances, the fact that their lights, their Christmas trees, their ornaments are costing more? Yeah, whether you're purchasing new lights, you need to upgrade your artificial tree, you're trying to buy a nativity set, all of those things are being hit with tariffs. And they have climbed from, I think like the graphic shows, a rather small amount in 2024 to very large numbers. Upwards of $500 million in tariffs have been paid, and that's just through the first nine months of 2025 compared to 2024. This makes it more expensive. Whether it's a business that's trying to sell these goods to consumers and it faces higher prices, maybe it can't hire as many seasonal workers because costs have gone up just to stock the shelves, or whether that shows up in the sticker price that we pay, it makes things less affordable, which means we purchase less, which means ultimately we're having a lower standard of living because of this higher cost that's applied to what has no real rationale to have tariffs in the first place. And these aren't goods related to national security. These aren't goods related to national emergencies. They're holiday items, and they cost more because of the trade war. What about the toy picture? Because I will tell you, I went to the store looking for Santa presents for my daughter. They were pricey. Yeah, toys are one of the things that have had tariffs applied. They do not have an exemption. And I think this is interesting because in Trump's first term, they were also considering putting tariffs on a host of consumer goods, including toys and board games. And at that time, the president decided to delay imposing those tariffs ahead of the holiday season because he didn't want consumers to have to pay more to put Christmas presents under the tree. This year, I guess that is not the case. And we are paying more toys, board games. You know, my kids wanted scooters this year. All of those things have tariffs applied, which is going to make them more costly. So between this, the new tax rules and a potential tariff rebate next year, that's being talked about a lot. Will that will those two elements, so to speak, be enough to offset higher costs for households next year, the tariff, a tariff rebate and the tax savings? So I think a tariff rebate is not really on the table. The president and his administration have spoken a lot about this. But to actually implement a new rebate policy to send checks out to people would require an act of Congress. And I don't think that's high on the priority list for Congress. People will benefit from the tax cuts that Congress passed last year, both when they go to file their taxes in the upcoming filing season and get larger refunds. And then going forward, the Treasury Department will adjust withholding tables so that lower taxes are withheld from each paycheck. So a little bit higher take home pay with each paycheck. And people will notice that depending on a person's situation, that will that will really determine whether their tax cut outweighs their tariff burden. But the tax cuts in aggregate do add up to a lot larger revenue impact than the tariff hikes have. So it makes sense for most people that they'll they'll come out ahead when you weigh the combination of tax cuts and tariffs. But I think an important caveat to that is that for the most part, the tax cuts are continuing status quo. Like I mentioned up at the top, a lot of what Congress did was extend expiring tax provisions. So from a personal standpoint, you know, if your tax bracket remains the same year to year, if your standard deduction is close to the same with a small boost, you're not going to feel much different. But you will notice the tariffs. So from a sentiment standpoint, people may feel worse off, even though from a budgetary scoring standpoint, it looks like large tax cuts.