2026 Tax Legislation: Strategy Prospects

Last updated Mar 27, 2026

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President Trump has proposed new tax legislation that includes a potential replacement of the income tax with tariff revenue, additional personal and corporate tax cuts, and a new Saver’s Match to replace the current Saver’s Credit. A bipartisan Taxpayer Assistance and Service bill is also moving through Congress, which includes expanding the digitization of tax returns, creating a dashboard with call volume information, and increasing the independence of the office of the National Taxpayer Advocate Service and the IRS Independent Office of Appeals. However, analysts suggest that it could be impossible to replace the income tax with tariff revenue due to potential retaliation from trading partners, increased consumer prices, and lower import volumes.

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Unusual Election Year Activity Surrounds Tax Legislation

In a departure from routine, the current election year presents a flurry of activity around tax legislation, despite the usual focus on re-election for every member of the House and a third of the Senate. The normal compromises needed for legislation enactment are often harder to achieve in such a year.

Last year, President Trump successfully passed a major tax legislation, H.R. 1, the One Big Beautiful Bill Act (OBBBA), in the early part of his second term. This mirrors his achievement in the first year of his first term when he enacted the Tax Cuts and Jobs Act in 2017. Thus, it would be expected that focus on tax legislation in the current year would diminish.

However, there is a departure from the norm this year. A largely bipartisan Taxpayer Assistance and Service bill is already on its way through Congress. Furthermore, during his State of the Union Address, President Trump presented several tax proposals; some long-term, others seeming to be focused on another current tax bill. The latter may be achieved using the budget reconciliation process, aiming to pass the legislation this year with only Republican support. This is in anticipation of a potential loss of Republican majorities in the 2026 mid-term elections.

(For More Read: “Major concerns this tax season“.”)

Although President Trump has suggested a long-term goal of substantially replacing income tax with tariff revenue, a Supreme Court ruling on the illegality of many such tariffs may have caused a shift in focus to a shorter-term goal. This would involve finding the money to refund those tariffs. There is also speculation of a need for government supplemental funding to replace military weapon stockpiles being used up in Iran.

The Taxpayer Assistance and Service Bill

The proposed Taxpayer Assistance and Service bill includes several suggestions such as:

Digitalizing tax returns;
Creating a dashboard for tracking call volumes;
Expanding online accounts;
Increasing penalties for tax preparers and additional regulations for obtaining a preparer Taxpayer Identification Number;
Extending the mailbox rule to electronic filings;
Pushing back the tax deadline for hostages and individuals detained abroad;
Removing the power of the IRS to withdraw an organization’s tax-exempt status on grounds of suspected support for terrorists;
Granting the U.S. Tax Court the ability to hear refund cases; and
Boosting the independence of both the National Taxpayer Advocate Service and the IRS Independent Office of Appeals.

There’s a possibility that sections of this legislation might pass in 2026 without the need for budget reconciliation.

The Saver’s Match Initiative

Starting 2027, a new Saver’s Match, originating from the SECURE 2.0 Act of 2022, is set to replace the current Saver’s Credit. Qualified deposits into 401(k)s, 403(b)s, 457(b)s, or non-Roth IRAs will be eligible for a 50% government match for contributions up to $2,000. Additionally, this year, under the OBBBA, Trump accounts can also qualify for a $1,000 government contribution for children born between 2025 and 2028.

In his State of the Union Address, President Trump proposed government-backed retirement accounts for workers without 401(k)s, modeled on the federal Thrift Savings Plans, that would include a government match of up to $1,000 per year. In addition to this, President Trump has suggested $1,000 payments to farmers to counterbalance the negative effect of tariffs on agricultural activities.

Additional Tax Cuts

During his State of the Union address, President Trump hinted at asking Congress to enact further personal and corporate tax cuts, beyond those in the Tax Cuts and Jobs Act and the OBBBA. He suggested using budget reconciliation to enact these tax cuts before the new Congress commences after the fall elections in case Republicans lose their majority.

Income Tax Replacement with Tariffs

President Trump also suggested the possibility of replacing income tax with tariffs during his State of the Union address. However, analysts have concluded that it would be challenging to make tariffs a substantial replacement for the income tax. For instance, in fiscal year 2025, the federal government collected around $195 billion in tariffs and related import duties. In contrast, the federal income tax raised over $2.6 trillion during the same period.

Supplemental Spending Bill

Developments have hinted that Congress may need to consider a supplemental spending bill, which could raise issues regarding how to offset the cost of the additional spending. As tariff refund claims are submitted to the U.S. Court of International Trade and the court allows the submission of these claims, the federal government may need to raise as much as $200 billion to pay those refund claims. Furthermore, there are concerns about the need for supplemental spending to replace the ordnance and drone and missile defense systems being utilized in Iran.

OBBBA Provisions Effective in 2026

Several provisions of the OBBBA are also set to take effect in 2026. These include a new charitable deduction for nonitemizers and the new adjusted gross income floors on charitable deductions for itemizers and corporations. Furthermore, the expansion of qualified K-12 expenses for 529 plans from $10,000 to $20,000 will become effective in 2026. The estate and gift tax exclusion will also be revised to $15 million per person and $30 million for a married couple starting in 2026.

In summary, the potential impact of these factors suggests that there may be more new tax provisions to look at for 2026 federal income taxes than is usually the case in election years.

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