2026 Tax Law Updates
The One Big Beautiful Bill Act changed several rules that directly affect IRS collection programs. Here is exactly what changed, what stayed the same, and what it means for your installment agreement, Offer in Compromise, or CNC status.
Most important change for people with IRS debt: the overtime pay deduction
If you earn overtime, the OBBBA lets you deduct that pay before calculating your taxable income. The IRS uses your income to calculate how much you can afford to pay each month. Lower income on paper means a lower required payment on a payment plan and a lower minimum Offer in Compromise amount. If you have not recalculated your numbers using 2026 rules, you may be overpaying.
Every Change, With Plain-English Impact
Cross-referenced with the Internal Revenue Code and Internal Revenue Manual as amended by P.L. 119-21.
Income & Deductions
Direct Resolution ImpactOvertime Pay Deduction (New for 2026)
Key ChangeQualifying overtime compensation is now deductible above the line, reducing Adjusted Gross Income. The IRS uses your income to calculate how much you can pay each month. Less income on paper means a lower required payment on an installment agreement and a lower minimum Offer in Compromise amount.
Impact on IRS resolution: Overtime earners may qualify for lower payment plans or smaller OIC offers than previously calculated. Recalculate your MDI using 2026 rules if you earn overtime.
SALT Deduction Cap Raised to $40,000
The State and Local Tax deduction cap increases from $10,000 to $40,000 for filers with MAGI under $500,000. Phases out above $500,000 MAGI. Applies to married filing jointly, single, and head of household.
Impact on IRS resolution: May reduce future tax liability for itemizers in high-tax states (CA, NY, NJ, IL). Does not affect existing IRS debt or active collection programs.
Standard Deduction Permanently Increased
The higher standard deductions from the 2017 TCJA are permanently extended: $15,000 (single), $30,000 (married filing jointly), $22,500 (head of household). These amounts are now inflation-indexed going forward.
Impact on IRS resolution: Reduces AGI for the majority of taxpayers who take the standard deduction. No direct effect on IRS collection programs.
Business & Self-Employment
Self-Employed ImpactBonus Depreciation Restored to 100%
100% first-year bonus depreciation is restored for qualified business property. This had phased down to 60% in 2024. Business owners can now fully expense qualifying equipment and machinery in year one instead of depreciating over multiple years.
Impact on IRS resolution: Reduces business taxable income for 2025, which may reduce self-employment taxes and future IRS obligations going forward.
Qualified Business Income (QBI) Deduction Made Permanent
The 20% QBI deduction for pass-through business income — sole proprietors, S-corps, partnerships — is now permanently extended. This was scheduled to expire after 2025.
Impact on IRS resolution: Self-employed taxpayers retain the 20% deduction on qualifying net business income. Reduces effective tax rate on business profits.
IRS Collection Programs — Unchanged by OBBBA
No ChangeCSED: Still 10 Years from Assessment Date
The Collection Statute Expiration Date remains 10 years from the date the IRS assessed the tax. The OBBBA made no changes to the IRS's legal window to collect unpaid tax debts.
Impact on IRS resolution: No change to CSED strategy. Tolling events (OIC, bankruptcy, installment agreement appeals) still extend the clock.
OIC Eligibility Rules and the RCP Formula
The Offer in Compromise program rules, the doubt-as-to-collectability standard, and the Reasonable Collection Potential formula are unchanged. The indirect effect is through the overtime deduction reducing gross income before MDI is calculated.
Impact on IRS resolution: The RCP formula itself is unchanged. The income variable inside it may be lower for overtime earners.
Penalty Rates: Failure-to-File and Failure-to-Pay
Failure-to-file: 5% of unpaid tax per month, maximum 25%. Failure-to-pay: 0.5% of unpaid tax per month, maximum 25%. While an installment agreement is in effect, the FTP rate drops to 0.25% per month. Interest continues at the federal short-term rate plus 3%.
Impact on IRS resolution: No change to penalty accrual rates. The installment agreement FTP reduction remains in effect.
CDP Hearing Rights and Levy / Lien Procedures
Federal tax lien filing procedures, the 30-day CDP hearing deadline from Final Notice of Intent to Levy, and all levy procedures are unchanged by the OBBBA.
Impact on IRS resolution: No change to CDP deadlines or lien and levy defense options. Missing the 30-day CDP window still results in losing Tax Court access.
2026 IRS National Expense Standards — Quick Reference
Effective April 2026 (IRM 5.15.1). These allowances reduce your MDI in OIC and payment plan calculations. Higher allowances benefit taxpayers.
| Household Size | Monthly Allowance | Annual Total |
|---|---|---|
| 1 person | $839/mo | $10,068/yr |
| 2 people | $1,481/mo | $17,772/yr |
| 3 people | $1,753/mo | $21,036/yr |
| 4 people | $2,129/mo | $25,548/yr |
| Each additional person | $416/mo | per person added |
Healthcare Out-of-Pocket
Under 65: $84/person/month
65 and over: $149/person/month
Insurance premiums are allowed at actual cost, on top of these amounts.
Transportation Operating Costs (per car)
Northeast: $354/mo • West: $327/mo
Midwest: $295/mo • South: $288/mo
Vehicle ownership: $654/mo (1 car) or $1,308/mo (2 cars), all regions.
What the OBBBA did not touch
- The 10-year CSED — still IRC § 6502, still 10 years from assessment
- OIC eligibility rules and the RCP formula structure
- Failure-to-file (5%/mo) and failure-to-pay (0.5%/mo) penalty rates
- CDP hearing rights and the 30-day deadline from Final Notice of Intent to Levy
- Federal tax lien and levy filing procedures
- Installment agreement types: Streamlined, PPIA, and Regular IA
- Currently Not Collectible (CNC) qualification standards
- Innocent Spouse relief rules and Form 8857 deadlines
Frequently Asked Questions
What is the One Big Beautiful Bill Act (OBBBA)?
The One Big Beautiful Bill Act (P.L. 119-21) is 2026 federal tax legislation that extended and modified provisions from the 2017 Tax Cuts and Jobs Act, introduced a new overtime pay deduction, raised the SALT deduction cap, and made changes to business expensing rules. For people with IRS debt, the overtime deduction is the most significant change because it directly reduces the income figure the IRS uses to calculate your monthly payment.
How does the OBBBA overtime deduction affect my IRS payment plan or OIC?
If you earn overtime pay, the OBBBA lets you deduct qualifying overtime compensation from your Adjusted Gross Income. The IRS uses your income minus allowable expenses to determine your Monthly Disposable Income (MDI). A lower MDI reduces both your minimum OIC offer amount and your required installment agreement payment. The IRS updated its financial analysis standards in April 2026 to reflect this change.
Did the OBBBA change the SALT deduction cap?
Yes. The OBBBA raised the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 for taxpayers with Modified Adjusted Gross Income under $500,000. The cap phases out above $500,000 MAGI. This does not directly affect IRS collection programs but may reduce your future federal tax liability if you itemize in a high-tax state.
Did the OBBBA change IRS penalty rates or collection timelines?
No. The OBBBA did not change failure-to-pay penalty rates (0.5% per month), failure-to-file penalties (5% per month), interest rates, or the 10-year Collection Statute Expiration Date under IRC § 6502. Those remain unchanged for 2026.
Are the 2026 IRS expense standards different because of the OBBBA?
The IRS updated its National and Local Expense Standards in April 2026 as part of its regular annual update cycle. These are separate from the OBBBA legislative changes but happened concurrently. The new 2026 standards — including the National Standard of $839/month for a single person — are reflected throughout this site and in our calculators.
Did the OBBBA make it easier or harder to qualify for an Offer in Compromise?
For overtime earners, it can make qualification easier because qualifying overtime compensation is excluded from the income figure used to calculate Reasonable Collection Potential (RCP). For non-overtime earners, the formula is unchanged. No other OIC eligibility rules were modified by the OBBBA.
Apply This to Your Situation
OIC Eligibility Calculator
Recalculate your offer amount using 2026 expense standards and the overtime deduction.
Installment Agreements
See how updated MDI calculations affect your minimum required monthly payment.
Offer in Compromise Guide
Full guide to the RCP formula and how 2026 changes affect your minimum offer amount.
Currently Not Collectible
Updated expense allowances may make CNC status accessible for more taxpayers in 2026.
Authority Citations
This content is based on the following official IRS sources. All links open in a new tab.
- — Full text of the 2026 legislation extending and modifying TCJA provisions
- — 2026 IRS allowable expense figures used in financial analysis
- — IRS internal procedures governing allowable expense analysis for collection cases
- — Statutory authority for the above-the-line overtime pay deduction
Information current as of 2026. Tax laws change frequently. Verify with official IRS sources before taking action.