Tax Season 2027: The New Deductions, Credits and Dates

Why This Filing Season Is Different

The tax return you file in early 2027 covers your 2026 income, and it is shaped by the biggest set of tax changes in years, the 2025 budget law. This is the second season under the new rules, but surveys and last year’s filing data suggest most eligible workers still have not claimed the new deductions, because they did not know the deductions existed.

Four of them matter most for working households: tips, overtime, a senior deduction, and car loan interest. Missing them means leaving real money with the IRS. This guide covers each one with its limits, the credits that did and did not change, the dates, and how to file free.

The Dates That Matter

• Late January 2027: the IRS typically opens filing in the last week of January and announces the exact date in early January. We will update this page when it lands.
• Mid-February 2027: the earliest that refunds involving the Earned Income Tax Credit or Additional Child Tax Credit can be released. Federal law holds these refunds until mid-February for fraud screening, every year, no matter how early you file.
• 15 April 2027: the filing deadline.

Filing early still makes sense even with a held refund. It locks your Social Security numbers against fraudulent returns and puts you at the front of the processing queue.

The Four New Deductions, Plainly

All four work the same way in one important respect: you do not need to itemize. They stack on top of the standard deduction, which is what makes them unusual and valuable for ordinary households.

1. The tips deduction

Workers in tipped occupations can deduct up to $25,000 of qualified tip income. Tips still get reported as usual, and payroll taxes still apply to them; the deduction removes federal income tax on that amount. It phases out for higher earners, beginning around $150,000 of income for single filers and $300,000 for joint filers.

The practical trap: tips that were never reported cannot be deducted. The deduction rewards exactly the reported tips some workers used to minimise, which changes the old math completely.

2. The overtime deduction

Up to $12,500 of overtime premium pay is deductible, $25,000 for joint filers, with the same phase-out levels. The word premium matters: what is deductible is the extra half of time-and-a-half, not the whole overtime paycheck. Your W-2 now carries the qualified amount in its own box, so the number comes to you rather than needing calculation.

3. The senior deduction, and the Social Security myth

People 65 and over get an additional deduction of up to $6,000 per person, on top of the standard deduction and the existing age addition. It phases out above $75,000 of income for singles and $150,000 for couples.

Now the myth that will not die: the law did not make Social Security tax-free. The claim circulated everywhere, and it is wrong. The taxation rules for Social Security benefits are unchanged. What seniors actually got is this $6,000 deduction, which for many modest-income retirees does zero out the tax on their benefits in effect, but the mechanism matters when you file, and anyone promising you Social Security is now untaxed is misinforming you.

Related timing note for 2027: January’s Social Security COLA increase raises the income these thresholds measure, which is worth knowing if you sit near a phase-out line.

4. The car loan interest deduction

Interest on a loan for a new vehicle assembled in the United States is deductible up to $10,000 per year, with phase-outs beginning at $100,000 single and $200,000 joint. Used cars and leases do not qualify, and neither do vehicles assembled abroad, which makes the window-sticker assembly location a tax document now.

The Credits: What Changed and What Did Not

Child Tax Credit

The credit is $2,200 per qualifying child, made permanent and indexed by the 2025 law, with up to $1,700 of it refundable for families whose credit exceeds their tax bill. One rule change catches some families: the parent filing must have a work-eligible Social Security number for the child to qualify.

Earned Income Tax Credit

The EITC continues unchanged in structure, worth over $8,000 for a family with three or more children at its maximum. It remains the single most under-claimed major credit; roughly one in five eligible workers never files for it, often because their income was low enough that filing seemed optional. If you worked at all last year, checking EITC eligibility is worth more than any deduction on this page.

The standard deduction

For 2026 returns: $16,100 single, $32,200 married filing jointly, with heads of household between. Combined with the new stacked deductions above, a tipped or overtime-heavy household can shield a lot of income without itemizing anything.

If You Had Marketplace Health Insurance

One reconciliation surprise is hitting harder than usual. The enhanced ACA subsidies expired at the end of 2025, and 2026 was the first year under the old, stricter rules, including the hard income cliff. When you file, your actual 2026 income gets reconciled against the subsidy estimate you gave healthcare.gov, and crossing the cliff can mean repaying subsidies at tax time.

If your income rose during 2026 and you had marketplace coverage, do not be blindsided in March. Our ACA guide explains the cliff, and updating your income estimate for 2027 coverage during open enrollment prevents the same surprise next year.

Other Income That Surprises People

Unemployment benefits are taxable income, and most people do not have tax withheld from them. If you collected during 2026, the bill arrives on this return; our job-loss benefits guide covers the withholding choice for anyone still collecting.

State payments and rebates from 2026 vary in federal treatment by program. Check the guidance your state issued with the payment rather than assuming either way.

Trump Accounts, the child investment accounts seeded with $1,000 for babies born from 2025 through 2028, opened during 2026. They do not change this year’s return for most families, but contributions and the accounts themselves have tax rules worth reading before adding money.

How to File Free

Paying to file is optional for most households, and the free routes are better than their reputation:

• VITA, the volunteer income tax assistance program, prepares returns free for moderate-income households, seniors, people with disabilities and limited-English filers, with IRS-certified volunteers who claim the credits chains sometimes miss. Sites open in libraries, community centres and community action agencies from late January; 211 can locate them.
• IRS Free File partners the IRS with commercial software for free federal filing for most incomes, through IRS.gov.
• Avoid refund anticipation products. Loans against your own refund and fee-loaded prepaid cards convert your money into someone’s margin. With electronic filing and direct deposit, most refunds arrive fast enough that borrowing against them makes no sense.

Mistakes to Avoid This Season

• Assuming the new deductions require itemizing. They do not; they stack on the standard deduction.
• Believing Social Security became tax-free and skipping the actual senior deduction paperwork.
• Deducting all overtime pay instead of the premium portion shown on the W-2.
• Not filing because income was low. Low-income non-filers are exactly who the EITC and refundable Child Tax Credit exist for, and not filing forfeits both.
• Paying for preparation a VITA site would do free, then paying again to borrow your own refund.

Frequently Asked Questions

When does tax season 2027 start?

The IRS typically opens filing in late January and announces the exact date in early January. The deadline is 15 April 2027. This page will be updated with the official opening date.

Is Social Security tax-free now?

No. The taxation rules for benefits are unchanged. What the 2025 law created is an additional deduction of up to $6,000 for people 65 and over, which reduces or eliminates the tax for many modest-income retirees but is a different mechanism than tax-free benefits.

How does the tips deduction work?

Up to $25,000 of reported qualified tips can be deducted from federal income tax without itemizing, phasing out at higher incomes. Payroll taxes still apply, and only reported tips count.

How much is the Child Tax Credit for 2026 returns?

$2,200 per qualifying child, with up to $1,700 refundable. The filing parent needs a work-eligible Social Security number.

Why is my refund held until mid-February?

Federal law requires the IRS to hold refunds claiming the EITC or Additional Child Tax Credit until mid-February for fraud screening. Filing earlier still gets you processed sooner once the hold lifts.

Do I have to itemize to claim the new deductions?

No. The tips, overtime, senior and car loan interest deductions all stack on top of the standard deduction, which is precisely what makes them valuable for ordinary households.

Where can I get my taxes done free?

VITA sites prepare returns free for moderate-income households from late January, and IRS Free File covers free federal software filing for most incomes through IRS.gov. Call 211 to find a VITA site near you.

The Bottom Line

This is the season the new deductions stop being news and start being money, and the households that lose out are the ones that never hear about them. If your work involves tips or overtime, you are 65 or older, or you bought a new American-assembled car, this return works differently than any before it.

And if your income was modest enough that filing feels optional, file anyway. The EITC and the refundable Child Tax Credit only pay people who do. For everything your household may qualify for beyond taxes, our free eligibility checker takes about two minutes.