Understanding Tax Deductions and Credits for the 2025 and 2026 Tax Years

Understanding deductions and credits can help reduce the amount of tax you owe or increase your refund. With recently announced tax changes in effect for the 2025 and 2026 tax years, knowing which tax benefits are available has never been more important.

Here’s a helpful overview of common deductions and credits that may apply to many working individuals and families.

Standard Deduction vs. Itemized Deductions

Most taxpayers choose the standard deduction, which reduces taxable income by a set amount. Others may benefit from itemizing deductions if their qualifying expenses exceed the standard deduction.

For the 2025 and 2026 tax years, lawmakers expanded access to certain deductions that are available whether you itemize or take the standard deduction. These updates create new opportunities for tax relief for eligible taxpayers.

Itemized deductions may include:

  • Mortgage interest
  • State and local taxes, subject to IRS limits
  • Charitable contributions
  • Certain medical expenses

Education-Related Tax Benefits

If you or a dependent paid for education expenses, you may qualify for tax benefits that help offset the cost of tuition, fees, and loan interest.

These may include:

  • American Opportunity Tax Credit
  • Lifetime Learning Credit
  • Student loan interest deduction

Child and Dependent Credits

Working families may qualify for credits related to children or dependent care expenses. These credits can significantly reduce overall tax liability and help offset the cost of childcare and caregiving.

New Tax Changes Affecting Working Income

Several recent tax changes may benefit a wide range of taxpayers during the 2025 and 2026 filing seasons.

No Tax on Qualified Tips
Eligible taxpayers may deduct qualified tips up to a specified limit under recent tax changes, offering relief for workers in service-related industries.

No Tax on Overtime Compensation
If you receive overtime pay, a portion of that income may now qualify for a deduction. This generally applies to the additional pay earned beyond your regular hourly rate.

How Educational Community Alliance Credit Union Can Help

At Educational Community Alliance Credit Union, we help members stay informed and prepared during tax season.

Our tools and services can help you:

  • Locate loan and account information needed for tax preparation
  • Review savings and contribution activity from the past year
  • Understand how everyday financial decisions may impact your taxes

While we do not provide tax advice, our team is available to help you gather information and prepare questions before meeting with a tax professional.

Important Reminder

Educational Community Alliance Credit Union does not provide tax advice. Tax laws and individual circumstances vary. Members are encouraged to consult a qualified tax professional or financial advisor for guidance on deductions, credits, and how recent tax changes apply to their specific situation.

Posted by Maggie Latham in Financial Wellness.