Low-Alcohol Wine Gets Tax Code Makeover: New Rules Kick In January 2026

The aptly named Bubble Tax Modernization Act of 2025 is making a technical but important change to how the federal government taxes certain alcoholic beverages. Specifically, Section 2 of this Act reclassifies “low alcohol by volume wine” for federal excise tax purposes, essentially treating it like standard still wine.

What’s Happening Under the Hood?

If you’re a producer or consumer of wine that’s lower in alcohol, this change matters. The bill defines “low alcohol by volume wine” as any wine with less than 8.5 percent alcohol by volume (ABV) and very low carbonation—specifically, no more than 0.64 grams of carbon dioxide per 100 milliliters. Under the current tax code, these products might have been taxed differently. Starting January 1, 2026, the IRS will treat this low-ABV wine the same as regular still wine (up to 16 percent ABV) for tax calculation purposes under specific sections of the Internal Revenue Code (IRC Section 5041(h)). Think of it as putting the low-alcohol stuff in the same tax bucket as its full-strength counterpart.

Why the Change Matters for the Industry

For the small businesses and wineries making these products—which are often popular with health-conscious consumers or those looking to moderate their intake—this is mainly about simplifying compliance. Instead of navigating a potentially separate tax structure, they now follow the established rules for still wine. This could be a good thing if the still wine tax rate is lower or more straightforward than what they faced before. However, if the still wine rate is actually higher, it could mean a slightly increased tax burden, which could eventually trickle down to the consumer’s price tag. The law also gives the Secretary authority to make small, necessary adjustments to that carbon dioxide limit for commercial operations, which adds a little flexibility for manufacturers but also a touch of administrative discretion.

The Real-World Timeline

This isn't an overnight change. The new tax treatment only applies to wine that is removed from bond—meaning it leaves the production facility and enters the market—after December 31, 2025. So, if you’re a producer, you have over a year to adjust your accounting and production strategies to align with the new classification. For the rest of us, this is a classic example of a technical tax fix that aims to streamline the rules for a growing product category, ensuring that the tax code keeps pace with what people are actually drinking.