What’s New for 2026: Accounts and Credits

Happy Monday,

In this issue of our end-of-the-year newsletter series, we will discuss more changes from the One, Big, Beautiful Bill Act including ABLE accounts, Trump Accounts, and Child Tax Credits. We will also inform you on some steps you can currently take to ensure tax season is smooth sailing for both yourself and us.

ABLE Accounts

What is it?

• The Achieving a Better Life Experience (ABLE) Act of 2014 allows states to create tax-advantaged savings programs for eligible people with disabilities, and, in Louisiana, generate state credits for account owners. Anyone (parent, grandparent, relative, friend, beneficiary themselves, etc.) may contribute but only those designated as account owners may claim a state credit. Funds from these accounts can help the designated beneficiaries pay for qualified disability expenses. Distributions are tax-free if used for qualified disability expenses, much like a Health Savings Account distribution.
  
• If contributors or employed individuals with disabilities are eligible for the ABLE-to-Work provision and are not participating in a workplace retirement plan such as a 401(k), they can make additional contributions to their account beyond the standard annual limit ($19,000 in 2025), but no more than the lesser of the federal poverty level ($15,650 for a single taxpayer) or their earned income.
  
• For example: If an eligible beneficiary earns $65,000 during the year and does not contribute to a workplace retirement plan, they may contribute the standard $19,000 plus up to $15,650 more under the ABLE-to-Work provision, for a maximum possible contribution of $34,650.
  
• Rollovers from a qualified tuition program (529 plan) to an ABLE account are now permanent.
  
• ABLE account contributions remain eligible for the Saver’s Credit.
  

What is Saver’s Credit?

• The Saver’s Credit is a non-refundable tax credit that is designed to reward taxpayers, who are low-income earners, for making eligible contributions their IRA or a workplace retirement plan. Only the designated beneficiaries of ABLE accounts are eligible to claim their contributions for the Saver’s Credit. You may be eligible for a tax credit of up to 50% of your contribution based on your income and filing status. See your eligibility here. The credit can reduce your tax bill dollar-for-dollar up to $1,000 for a single taxpayer or $2,000 for married couples filing jointly.
  
• For example: If a single taxpayer contributes $3,000 to a Roth IRA and qualifies for the 50% credit, they could only receive a maximum $1,000 reduction in their tax liability.

Starting in 2026, the cutoff age for ABLE account qualifications increases from 26 to 46. This change will have a significant impact on access to ABLE accounts for Americans that developed disabilities later in life.

Trump Accounts

What is it?

• A Trump account is a type of traditional IRA that is established for the exclusive benefit of American children born within the term of the pilot program, December 31, 2024 to January 1, 2029. Eligible children must have a valid social security number. The federal government is providing a $1,000 pilot contribution when the account is opened.
  
• Until children, who are the legal owners and beneficiaries of their own account, turn 18, their accounts follow rules outlined by a specialized “growth period.” During this time, only approved investments (mostly Mutual Funds and Exchange-Traded Funds or ETFs), can be made, distributions are generally prohibited, and no tax deduction is allowed on contributions.

How do I claim it?

• Trump accounts are created through an official election to the IRS on Form 4547 or through the official government portal at trumpaccounts.gov in the latter part of tax year 2026.

What does this mean to me?

• Set up by the taxpayer claiming the dependent, these accounts serve as a long-term, wealth-building tool. They are specifically designed to encourage early investing for the child, limit exposure to high-risk investments, and provide future flexibility for the child’s education, housing, or even retirement

Child Tax Credit

Qualifications:

• Be under 17 years old by the end of the tax year
  
• Pass a relationship test (Son/ Daughter, Niece/ Nephew, Sibling, etc.)
  
• Live with taxpayer for more than half the year
  
• Have a valid Social Security number
  
• Taxpayers must file as single, head of household, or jointly with their spouse (married filing separately does not qualify for the credit)

The One, Big, Beautiful Bill Act (OBBBA) increased the Child Tax Credit in 2025 from $2,000 to $2,200 per child.

Phaseout thresholds based on adjusted gross income (AGI), $200,000 for single filers and $400,000 for married filing jointly, will remain throughout 2026.

The Child Tax Credit is partially refundable (up to $1,700 per child).

Other Dependent Credit:

• If your child does not meet the requirements for the Child Tax Credit they may still qualify for a $500 credit (this credit is available to other dependents living in the household as well).
  
• The Other Dependent Credit is non-refundable.

Get Ready for Tax Season

Gather and organize your tax records

• Bank account information, such as routing and account numbers for direct deposit or direct withdrawal purposes
  
• Forms W-2 from your employer(s)
  
• Forms 1099 from banks, such as 1099-INT, 1099-DIV, 1099-NEC, etc.
  
• Records of digital asset transactions, such as crypto currencies and the like
  
• Contact our office if you would like a tax organizer or checklist

Online Account

• We strongly encourage all clients to set up an IRS online account, often referred to as an “ID.me” account, which will allow you to access your personal tax information, including recently filed returns. This tool enables you and your CPA with permission to:

1. View tax records, including adjusted gross income and transcripts.
2. Make, schedule, and view payments.
3. Get or view their Identity Protection PIN (IP PIN).
4. Authorize a tax professional to access their tax records digitally.
5. Access available income information including W-2s and certain 1099s.

The IRS has Phased out Paper Refund Checks

• Most taxpayers must provide routing and account numbers to get their refunds directly deposited into their bank accounts. This change reflects the IRS’ goal of protecting taxpayers’ refunds, as paper checks are over 16 times more likely to be lost, stolen, altered, or delayed than electronic payments. In addition to protection, setting up direct deposit allows you to receive your refund sooner.

What does this mean to me?

• There will be no change in how your return is filed.
• If you do not have access to a bank account, options such as prepaid cards will be available. We strongly advise against this option due to increased risks of fraud and identity theft. It would be wiser to open a free or low-cost bank account instead. Visit FDIC: GetBanked and MyCreditUnion.gov for account options.

Required Minimum Distributions (RMD)

Adding to our discussion of RMDs in week 2’s newsletter, “A Closer Look at Your 2025 Opportunities,” below are several options that may be available if you missed taking an RMD and are facing a penalty. In certain situations, the IRS may allow the penalty to be reduced or removed.

Penalty Abatement Options:

• Option 1.) “First-time abate”- If you have filed all your returns and paid all your taxes for the prior three years, you can request first-time penalty abatement.
  
• Option 2.) “Due diligence abate”- If you entered some kind of tax transaction and received bad advice from an attorney, enrolled agent, or CPA, and relied on that advice, you may be able to get your penalty abated.
  
• Option 3.) “COVID abate”- Of course, COVID is still with us; therefore, if a penalty was incurred because of COVID, you may request a penalty abatement.
  
• Option 4.) “Sickness abatement”- If you were legitimately sick and could not conduct the necessary means of taking your RMD, you can request abatement.
  
• Option 5.) “Fact and circumstance abatement”- If a taxpayer has “reasonable cause” that they were unable to meet their RMD obligations, they may be able to have their penalty abated.

If you have any questions about the content we’ve covered in this newsletter or have something else you would like to discuss, please contact our office so we may assist you.

Dan Johnson, CPA
832 E Boston St STE 15, Covington, LA 70433
(985) 893-4123
dan@danjohnsoncpa.com