Four U.S. Tax and Financial Changes to Know in July 2026

July 9, 2026

During July, four areas of the U.S. tax and financial system changed at once: electric vehicle purchase assistance, investment accounts in children’s names, student loans, and IRS penalty relief procedures.

01. California’s $3,500 Instant Electric Vehicle Discount

Who Is Affected?

California residents purchasing an electric vehicle for the first time. There is no income limit.

What Changed?

The federal $7,500 electric vehicle tax credit ended September 30, 2025. California introduced its own discount program to fill the gap. Funding comes from approximately $135.5 million in the state budget under SB-168, with half provided by the state and half by automakers.

Category	Discount
New vehicles priced at $50,000 or less	$3,500
Used vehicles priced at $25,000 or less	$1,750

Three Easily Missed Points

This is an immediate discount, not a tax credit. You do not wait until next year’s tax return for a refund: the dealer reduces the price at purchase. Because it is unrelated to tax filing, buyers with no tax liability still receive the full benefit.

There is an exception to the price ceiling. Vehicles from California-headquartered manufacturers—Rivian and Lucid—are not subject to the $50,000 cap. Tesla, which moved its headquarters to Texas in 2021, does not qualify for this exception.

The program has not launched yet. The state budget took effect July 1, but the California Air Resources Board (CARB) is still finalizing agreements with manufacturers and dealers. Launch is expected within several weeks.

Our advice: If you plan to buy an electric vehicle, it is safer to sign the contract after the program officially launches. No announcement has yet made purchases before launch retroactively eligible. The choice between waiting a few weeks and giving up $3,500 is clear.

02. Trump Account Contributions Have Begun

Who Is Affected?

Parents of U.S.-citizen children under age 18 with valid Social Security numbers. Employers considering employee benefits are also affected.

What Changed?

A Trump Account is a new type of IRA opened in a child’s name under Internal Revenue Code §530A. Accounts could be opened previously, but contributions began on July 4, 2026. According to the Treasury Department, more than 6 million accounts have been opened so far.

Basic Structure

• Government seed funding: a one-time $1,000 for children born in 2025–2028 only. It does not count toward the annual contribution limit below.

• Annual contribution limit: $5,000 in total from parents, grandparents, friends, and employers combined. It is not $5,000 per contributor—a common misunderstanding.

• Employer contributions: up to $2,500 annually to an employee’s own account or the account of an employee’s dependent child. The contribution is excluded from the employee’s taxable income and counts toward the $5,000 limit above.

• Investments: U.S. stock index funds and ETFs such as the S&P 500, with fees of 0.10% or less. The default investment is SPYM.

• Withdrawals: permitted from January 1 of the year the child turns 18.

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Open an account using IRS Form 4547. It can be submitted with a tax return or handled through an IRS online account or trumpaccounts.gov.

A crucial point: Only personal after-tax contributions count as basis. The government's $1,000 seed funding, employer and charitable contributions, and all investment earnings are fully taxable as ordinary income when withdrawn, rather than at capital gains rates. This means all earnings accumulated over 18 years are ordinary income. Whether this is preferable to a 529 plan or custodial Roth IRA depends on the family's income bracket and the child's education plans.

Notes for Business Owners

An employer contribution program (TACP) may be worth considering as an employee benefit. Excluding up to $2,500 annually from employee taxable income is attractive. However, Treasury guidance on its relationship to cafeteria plans and ERISA has not yet been issued. There is no reason to rush implementation.

03. Major Overhaul of Student Loans

Who Is Affected?

People with federal student loans or those preparing to borrow for their children’s education. Read carefully if you are considering loan consolidation.

What Changed?

The overhaul under the One Big Beautiful Bill Act (OBBBA) took effect July 1, 2026. It is the largest change in decades.

New Borrowers: Only Two Repayment Plans Remain

Plan	Details
Tiered Standard	Fixed repayment over 10, 15, 20, or 25 years based on the balance. Minimum monthly payment of $50. No forgiveness.
RAP (Repayment Assistance Plan)	Income-based payments of 1–10% of AGI. Monthly payment of $10 for annual income below $10,000. A $50 monthly reduction per dependent child. Remaining balance forgiven after 30 years.

RAP has two advantages. If the monthly payment is less than that month’s interest, the government waives the excess interest so principal does not grow. If principal falls by less than $50 in a month, the government makes up the difference.

However, forgiveness takes 30 years, compared with 20–25 years under the existing IBR and PAYE plans. Only RAP payments count toward Public Service Loan Forgiveness (PSLF); Tiered Standard payments do not.

The Most Important Pitfall

Borrowers holding only loans originated before July 1 may keep their existing plans: Standard, Graduated, Extended, or IBR.

But taking a new loan or consolidating existing loans after July 1 permanently eliminates eligibility for all existing plans. Only RAP and Tiered Standard remain, with no way to reverse the change.

• SAVE plan termination: You must choose another plan within 90 days after receiving your servicer’s notice. Otherwise, you are automatically placed in the Standard plan, potentially causing a substantial increase in monthly payments.

• PAYE and ICR: end July 1, 2028

• IBR: remains available only for loans originated before July 1, 2026

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New Loan Limits After July 1, 2026

Category	Annual limit	Aggregate limit
Graduate school	$20,500	$100,000
Professional school, such as law or medical school	$50,000	$200,000
Parent PLUS	$20,000 per student	$65,000
Lifetime aggregate	—	$257,500, excluding Parent PLUS

New Grad PLUS lending has ended. Existing borrowers may continue for a limited period if they remain at the same school and in the same program. Undergraduate annual limits are unchanged, but part-time students’ limits decrease proportionately with their credit load. Parent PLUS also requires care: loans disbursed after July 1 are ineligible for RAP, effectively removing the path to PSLF. Meanwhile, Pell Grants have expanded to cover short-term vocational training beginning July 1.

04. IRS Automatic Exemption from Penalty (AEP)

Who Is Affected?

All taxpayers who filed and paid on time during the preceding 3 years, including individuals and corporations.

What Changed?

On July 8, 2026, the IRS announced a new penalty relief process in IR-2026-83, formally called Automatic Exemption from Penalty (AEP).

The existing First Time Abate (FTA) program waived penalties for taxpayers with a compliant history, but required a telephone call or written request. Many more people missed out because they did not know the program existed. AEP is assessed and applied automatically by the IRS during return processing. No call, Form 843, or notice response is required. Eligible taxpayers receive a notice stating that a penalty was not assessed.

Requirements and Coverage

Category	Details
Requirements	Timely filing and payment during the preceding 3 years, or the preceding 12 quarters for quarterly filers
Covered penalties	Failure to file, failure to pay, and failure to deposit. No dollar limit.
Covered forms	Forms 1040, 1065, 1120, 940, 941, 943, 944, 945, CT-1, and others
Exclusions	Information returns such as Forms 1099, and infrequently filed forms such as estate and gift tax returns

Implementation Timing

The program is being phased in from summer 2026, beginning with tax year 2025 returns and 2026 quarterly returns. For returns due on or after January 1, 2027, AEP fully replaces FTA.

During the transition, some eligible taxpayers may still receive penalty notices. In that situation, request FTA directly as before.

Caution: Only penalties are waived. The underlying tax, interest, and other penalties outside AEP must still be paid. Even if you do not meet the requirements, you may apply separately based on reasonable cause.

Summary

Item	Implementation	Key point
California EV discount	Launching soon	$3,500 for new vehicles and $1,750 for used vehicles. Purchases before launch do not qualify.
Trump Accounts	July 4	The $5,000 annual cap is combined across contributors. Earnings are taxed as ordinary income.
Student loans	July 1	Consolidation permanently eliminates eligibility for existing plans.
IRS AEP	Announced; phased implementation	Automatic relief without a request. A compliant filing history for the preceding 3 years is required.

This article provides general information as of July 2026 and does not constitute tax or legal advice. Application varies with individual circumstances; consult a professional when a specific determination is needed.