Tax-Free Income in 2026? These Changes Could Wipe Out Your Federal Bill
New legislation aims to exempt up to $92,000 in earnings from federal income tax. Here's who would win.
As we approach the 2026 mid-term elections and the close of a historic tax season, some lawmakers are already pivoting toward new tax relief proposals. Two plans in particular are designed to provide income tax cuts for low- and middle-income households by raising taxes on high earners.
Sen. Cory Booker (D-NJ) recently introduced a plan to almost triple the federal standard deduction to $75,000.
Regarding the proposal, Booker said in a release, "This tax cut would immediately put more money in your pocket every month to deal with the high price of everyday expenses, an unexpected emergency, or to plan for the future."
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Meanwhile, Sen. Chris Van Hollen (D-MD) has co-sponsored a plan to exempt up to $92,000 from federal income taxes.
"Far too many Americans are working hard for their paychecks but still having trouble making ends meet," Van Hollen stated in a release about the proposal.
But who actually benefits from these tax-free income proposals, and who would ultimately pick up the tab? Here's what to know.
Cory Booker's no tax on income proposal
Sen. Booker proposed the "Keep Your Pay Act" earlier this month, which would significantly increase the federal standard deduction.
Under Booker's plan, married couples filing jointly would see their 2026 standard deduction rise from $32,200 to $75,000, while single filers would receive a $37,500 deduction (up from $16,100).
Beyond the deduction hike, Booker's plan targets family tax relief:
- Enhanced child tax credit (CTC): Worth up to $4,320 for children under age six and $3,600 for those aged 6 to 17 (up from the current CTC of $2,200).
- Newborn bonus: A new CTC boost of up to $2,400 for the year a child is born.
- Earned income tax credit (EITC) expansion: Tripling the EITC for childless workers (from about $660 to $1,500) by increasing the phase-in and phase-out rates. The proposal also expands the credit eligibility to those 19 and older (removing the age 25-64 restrictions).
To offset these cuts, the Booker proposal shifts the tax burden toward the highest earners and corporations. The plan would:
- Raise the top individual federal tax rates by increasing the 35% and 37% brackets to 41% and 43%, respectively.
- Increase the corporate income tax rate and the stock buyback excise tax rate (specifics have not been announced).
"Americans are working harder and harder, and they're making less and less relative to their parents and grandparents," Booker told NBC News. "....We need big ideas that could redeem the dream of America."
But Booker's proposal isn't the only "big idea" on the table. Another co-sponsored plan seeks to exempt up to $92,00 for the average American worker.
Chris Van Hollen tax plan
Sen. Van Hollen and Rep. Don Beyer (D-VA) have introduced a competing vision for tax relief: the "Working Americans' Tax Cut Act" (WATCA). Instead of creating a higher standard deduction, this plan proposes a new "alternative maximum tax" system.
Under WATCA, the first $46,000 of income for single filers ($92,000 for married couples filing jointly) would be entirely exempt from federal income tax. To qualify, a taxpayer's income would have to be 175% or less of the exemption amount (roughly $80,500 for individuals or $161,000 for couples, per the Penn Wharton Budget Model).
Qualified taxpayers would then calculate their tax bill in two ways and pay whichever is lower:
- The current federal income tax code.
- A flat 25.5% rate applied only to adjusted gross income (AGI) above the $46,000 or $92,000 threshold.
Van Hollen proposes a tiered surtax on high earners to ensure the legislation is "fully paid for."
- 5% surtax on incomes above $1 million (or $1.5 million for joint filers),
- 10% surtax on incomes above $2 million (or $3 million for joint filers),
- 12% surtax on incomes above $5 million ($7.5 million for joint filers).
"[The proposal] avoids raising the national debt," Hollen stated in a press release regarding the surtax, "by ensuring the wealthiest pay their fair share."
However, some argue that an enhanced standard deduction provides the most tax relief for middle- and upper-middle-class, since the poorest households often have little federal income tax liability to begin with. Plus, both proposals might be too expensive to implement.
Who would pay lower taxes on 'tax-free' income?
According to Sen. Booker's office, the "median American family would see their taxes cut by roughly 85%." However, a Tax Foundation analysis reveals a massive shift in the federal tax burden from lower-income families to high-net-worth individuals.
Under Booker's plan:
- The top 1% of earners would see an average federal tax increase of $23,050 to $196,183.
- The lowest-income earners (those earning $18,461 or less) would receive the largest tax savings percentage at 11.4%, or $1,257 in after-tax income.
- But those with income between $135,756 and $196,530 would see the largest dollar amount of tax savings, around $6,656.
Meanwhile, under the Van Hollen plan:
- The top 1% of earners could see up to 9.7% increase in their federal income tax bill, hiking taxes by as much as $688,773.
- The largest share of relief (dollar amount and percentage) would target those earning between $40,036 and $76,868, with an average tax savings of $2,273.
- The bottom 20% of earners would receive only a $12 increase in tax savings, or .10%.
While both plans target income tax relief, their differing potential impacts on the national debt have raised concerns over long-term fiscal stability, according to recent projections from The Budget Lab at Yale and the Institute on Taxation and Economic Policy (ITEP).
- The Van Hollen plan is projected to lose at least $100 billion in revenue annually, according to ITEP.
- The Booker plan could result in a $5.4 trillion loss over 10 years, or 540 billion per year, according to Yale.
Furthermore, the Tax Foundation warns that the high marginal rates required to fund these cuts could negatively impact long-run GDP by discouraging investment and reducing labor supply.
Bottom line: Tax-free income in 2026?
With a GOP-controlled Congress and a high price tag — particularly for Sen. Booker's plan — most analysts expect these proposals to stall before reaching a floor vote. However, with mid-term elections coming this November, these "tax-free income" platforms may offer an early look at future economic priorities.
So this may only be the beginning of debates to come. A flurry of competing tax proposals could emerge this spring when Congress reconvenes after spring break. Stay tuned.
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