Tax Thursdays: 2026 Tax Drama

It's Thursday! Let's talk TAXES…

Although the longest US government shutdown in history is over, the deal reached ONLY keeps everything open until Jan. 31.

If Congress can’t agree to fund the government past that date, we’ll have another shutdown starting on February 1st. The biggest sticking point will be health care, especially the Obamacare subsidies that will go away beginning in 2026.

What does this mean? That unless Congress takes action, only people with modified adjusted gross income (AGI) between 100% and 400% of the poverty level can claim the healthcare Premium Tax Credits (PTC). This is impacting middle-income people who are now struggling to get marketplace coverage for 2026. Many of those individuals will discover they no longer qualify for the tax credits or the credit amount is lower. If they deem 2026 monthly insurance premiums unaffordable, we’ll have a new batch of uninsured Americans. This would disproportionately impact more people in red (Republican) states.

In a separate yet somewhat connected tax credit dispute, the White House aims to block undocumented people from receiving refundable credits. The Treasury Department is set to release regulations specifying that the earned income credit (EITC), the American Opportunity Tax Credit, the refundable portion of the child tax credit, and potentially other refundable tax credits will no longer be available to illegal immigrants. These regulations would kick-in for 2026 returns submitted in 2027. I anticipate legal challenges to these measures, contending that withholding refundable credits from immigrants requires an act of Congress.

These are just two of the significant tax battles we can anticipate seeing next year in the US. Let's not forget that this tax drama will unfold during a crucial election year. Both parties are promising decisive victories to their supporters. I'm just hoping that the average taxpayer isn't the one who ends up getting knocked-out.

Mauro L.