The new year may not feature massive tax code changes like we saw in 2025, but there will be plenty for taxpayers to watch. Among the biggest issues: How will a diminished IRS handle the filing season that opens in just a few weeks? Will the Supreme Court restrain President Trump’s worldwide tariffs—and how will he respond if it does?
Will Trump follow-through on his promise of a $2,000 tax rebate for nearly all people—and will Congress greenlight the idea? And will lawmakers restore the Affordable Care Act’s now-expired enhanced premium tax credits?
Partisan politics will matter, of course. But don’t be surprised if the state of the economy and the mood of the bond market largely decide the fate of 2026 tax and fiscal policy.
How Will Tax Season Go?
Let’s start with the IRS’s ability to process what likely will be more than 200 million individual and business tax returns.
As of last May, the IRS had lost about one-quarter of its staff through firings, retirements, and resignations. Nearly half its remaining staff was furloughed during the six-week government shutdown during a critical time for the agency to prepare for filing season. And another closure is possible at the end of January.
Congress slashed the IRS budget to 2023 levels and took back nearly all unspent extra funds the agency received from the Inflation Reduction Act
The service has had seven commissioners in the past year. Treasury Secretary Scott Bessent currently is acting head of the agency. Day-to-day operations are run by a part-time CEO who also runs the Social Security Administration. Many other top positions are vacant or headed by acting leaders.
Public confidence in the agency has plummeted, from 50 percent in 2019 to 28 percent in 2025, according to a Gallup survey. Last winter, the Elon Musk-led Department of Government Efficiency (DOGE) downloaded massive amounts of private taxpayer data. What happened to that information remains unknown. And, in an unprecedented step, the agency also agreed to share with immigration enforcement personal information about immigrant tax filers, which could make them reluctant to file returns.
ACA premium tax credits
Congress and the president ended 2025 without resolving the dispute over the now-expired enhanced subsidies. As a result, as many as 22 million people are facing premiums that will more than double on average, and an estimated 5 million could drop coverage entirely as ACA marketplace insurance becomes unaffordable.
Lawmakers may agree to a compromise in 2026, though that will be too late to enroll for January. Any deal probably would give people a few more months to sign up, extend the enhanced credits for a year or two, and add a handful of provisions intended to limit the credits for high-income households and curb what Republicans say is widespread abuse and fraud in the program. But congressional passage may require Trump’s support.
The Fate of Tariffs
The Supreme Court is likely to at least limit Trump’s authority to impose tariffs without the consent of Congress. During November oral arguments, a majority of justices appeared unconvinced by the government’s claim that the president has unlimited unilateral power to do so.
The Court is expected to rule early in 2026. If it constrains Trump’s authority under the law he relied upon, the International Emergency Economic Powers Act, the president likely will try to find other ways to reimpose his tariffs. But they would require a complex approval process and could be in place only for a limited period of time.
On the other hand, if the justices grant the president broad discretion to impose import taxes, their decision could embolden Trump to try to change other tax laws without Congress.
Trump’s $2,000 tax dividend
The president has repeatedly promised the payments, though he may be doing so primarily to pressure the Supreme Court to uphold the levies.
TPC estimates that the net cost of the tariffs and the dividend could hit $4.7 trillion over the next decade, if every American is eligible. But for Trump and GOP lawmakers, looking at a challenging 2026 election, the opportunity to send mid-year checks to prospective voters may be too tempting to ignore.
Other tax issues, such as a handful of expiring tax breaks, could ride on that bill. Or lawmakers could use a continuing resolution that will be needed to fund the government after January 30.
What Will The Bond Market Think?
But the fate of all of these tax cuts may well depend on how the bond market responds to complex economic and fiscal conditions.
If unemployment and inflation continue to rise, the nation could be headed for a period of stagflation. In normal times, the Federal Reserve would raise interest rates to restore price stability.
But Trump is demanding the Fed dramatically lower short-term interest rates. Such cuts in short-term rates in the face of rising inflation could spook bond traders. At the same time, they could grow wary of public federal debt topping $30 trillion and trillions of dollars in corporate debt to build out AI and data centers that, so far, have generated little to no return on investment.
If these trends spark a bond sell-off, any 2026 deficit-increasing tax cuts in 2026 likely are off the table.
Tax policy in 2026 will be driven by a complex mix of political, legal, and market pressures. They will be worth watching.
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