As tax refunds roll in this year, early data from the IRS is starting to paint a clear picture. The average refund has climbed to $3,571, up nearly 11% from the $3,221 average at the same point last year, according to IRS filing statistics.
Treasury Secretary Scott Bessent revealed last week that 44% of all returns filed, roughly 37.5 million, have claimed at least one benefit from the One Big Beautiful Bill Act signed into law on July 4, 2025.
But behind the headline number sits a more complicated reality you should understand before spending that extra cash. Not every filer qualifies for every new break, and these refund gains may not repeat next year.
Four new deductions are putting hundreds of extra dollars in your refund
The One Big Beautiful Bill Act created four above-the-line deductions, which means you can claim them even if you take the standard deduction. Each one targets a specific slice of income you earned in 2025, and all four are temporary through 2028.
Here is exactly what each new deduction covers, who qualifies, and how much it could reduce your tax bill this season.
1. The tip income deduction gives drivers up to $25,000 in relief
If you work in a job where customers regularly leave tips, you can now deduct up to $25,000 of that income from your federal taxes. The deduction covers waitstaff, bartenders, hair stylists, rideshare drivers, personal trainers, and more than 60 qualifying occupations, the IRS confirmed.
The benefit starts to phase out once your modified adjusted gross income passes $150,000 for single filers or $300,000 for joint filers. An estimated five million tax units will claim the tip deduction this year, with an average tax cut of about $1,400, the Tax Policy Center projects.
One important detail you should keep in mind: This is a deduction, not an exemption from all taxes on your tip income. Social Security, Medicare, and applicable state income taxes still apply to every dollar of tips you earn in 2025.
2. Overtime workers can now deduct the premium portion of their extra hours
The overtime deduction lets you write off the premium portion of your overtime pay, up to $12,500 for single filers or $25,000 for joint filers. Only the extra half of time-and-a-half compensation qualifies, not the full overtime check you receive.
You must be a non-exempt worker under the Fair Labor Standards Act to qualify for this break, the IRS states. Nurses, construction workers, firefighters, factory employees, and retail hourly workers are among the most common eligible groups.
The overtime deduction has been the most commonly claimed new break so far this filing season, IRS Commissioner Frank Bisignano told Congress. Roughly 15.5 million filers had used the overtime deduction as of early March, Newsweek reported.
3. Seniors 65 and older get an additional $6,000 deduction on top of existing breaks
If you turned 65 by Dec. 31, 2025, you can claim a brand-new $6,000 deduction that stacks on top of the existing senior standard deduction. Married couples in which both spouses qualify can claim $12,000 in combined benefits, which could eliminate federal taxes on Social Security benefits for many retirees.
“It’s a pretty big deal for higher-income folks that live in expensive cities… those people don’t tend to file early,” said William McBride, chief economist at the Tax Foundation.
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The phase-out begins at $75,000 in modified adjusted gross income for single filers and $150,000 for joint filers. Treasury Secretary Bessent described this provision as delivering relief to 88% of retired Americans.
IRS Commissioner Bisignano confirmed this deduction is producing the largest individual refund increases among all the new breaks available this year.
4. New car buyers and high-tax-state residents are also seeing bigger refunds
Two additional provisions provide refunds for specific groups of filers who meet the eligibility requirements under the new law.
Auto loan interest deduction
You can deduct up to $10,000 in interest paid on a new car loan originated after December 2024 on a vehicle assembled in the United States. The deduction phases out starting at $100,000 MAGI for single filers and $200,000 for joint filers, Charles Schwab explains.
SALT deduction cap raised to $40,000
The state and local tax deduction cap jumped from $10,000 to $40,000 for the 2025 tax year, a major benefit for filers in high-tax states. The new cap phases down for taxpayers with MAGI above $500,000 and will revert to $10,000 in 2030, the Bipartisan Policy Center notes.
If you live in New York, California, New Jersey, or Illinois and were previously capped at $10,000, this change alone could be worth thousands of dollars. You will need to itemize your deductions on Schedule A to take advantage of the higher SALT cap.
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Your bigger refund is partly your money coming back to you
The refund surge has a structural explanation that goes beyond the new deductions themselves, and you need to understand it clearly. When the One Big Beautiful Bill passed in July 2025, the IRS chose not to update employer withholding tables for the rest of that year.
Your employer kept withholding federal taxes at the old, higher rates for all of 2025, even though you owed less under the new law. The Tax Foundation estimates the law reduced individual income taxes for 2025 by roughly $129 billion.
That over-withholding is now flowing back to you as a larger refund, but it does not represent new money from the government. It represents your own earnings that were held longer than necessary throughout the year by your employer’s payroll system.
More than 6 million children are now signed up for Trump Accounts
Alongside the refund data, Bessent revealed that more than 6 million Americans have elected to open a Trump Account for their children.
These new tax-advantaged investment accounts were created under the One Big Beautiful Bill Act and will launch on July 5, 2026, Fidelity confirmed.
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Children born between Jan. 1, 2025, and Dec. 31, 2028, are eligible for a one-time $1,000 seed contribution from the U.S. Treasury. Parents and other family members can contribute up to $5,000 per year in after-tax dollars, and the funds grow tax-deferred, the Treasury Department shared.
You can elect to open a Trump Account by filing IRS Form 4547 with your 2025 tax return or by visiting trumpaccounts.gov. Investments must go into low-cost index funds tracking a U.S. stock index, with annual fees capped at 0.10%.
Rising oil prices could offset some of the tax savings you just received
The strong refund season is unfolding against a backdrop of rising energy costs tied to the ongoing conflict with Iran. West Texas Intermediate crude oil averaged $84.95 per barrel over the past month, though prices topped $100 per barrel on Monday, Yahoo Finance reported.
A Deutsche Bank analysis found that if oil remains at $100 per barrel, the OBBB’s tax benefits would still outweigh the energy-cost drag on consumers. But at $150 per barrel, higher fuel costs would pose a serious threat to household spending power nationwide.
The administration has responded with temporary sanctions waivers, a release of 172 million barrels from the Strategic Petroleum Reserve, and a 60-day waiver of the Jones Act to allow foreign ships to move fuel between U.S. ports, Bessent confirmed during a Cabinet meeting last week.
Steps to take before you spend your tax refund or file for an extension
Getting a larger refund is only useful if you manage your money strategically and plan ahead for next year’s filing season.
Key actions to consider right now
- Check whether you claimed every deduction you qualify for. The new breaks are reported on Schedule 1-A, and the IRS provides eligibility guidance for each one on irs.gov. If your employer did not separate overtime or tips on your W-2, you can use pay stubs and payroll records to calculate the deduction yourself.
- Update your W-4 now to avoid over-withholding in 2026. The IRS has updated its Tax Withholding Estimator to reflect most OBBBA changes. A modest adjustment keeps more money in your paycheck each month instead of lending it to the government interest-free.
- Do not assume next year’s refund will match this one. Once employers adjust withholding tables for 2026, the over-withholding that inflated this year’s refund will largely disappear. The new deductions for tips, overtime, auto loan interest, and seniors are also set to expire after 2028.
- Put your refund to work on high-interest debt or emergency savings first. A $3,571 refund applied to a credit card balance at 24% APR saves you hundreds of dollars in compounding interest over the next year. If your emergency fund covers fewer than three months of expenses, building that cushion delivers more long-term value than any purchase.
The April 15 deadline is two weeks away, and IRS website traffic has surged 55%
You have until April 15, 2026, to file your 2025 return or request a six-month extension using Form 4868 with the Internal Revenue Service. Visits to IRS.gov have increased 55.6% compared to the same point in 2025, rising from 244 million to more than 380 million visits, IRS data cited by Fox Business show.
Electronic filers who choose direct deposit typically receive their refund within 21 days after the IRS accepts the return. You can track your refund status using the Where’s My Refund tool on IRS.gov, which updates about 24 hours after you e-file a current-year return.
If you still have not filed and you earned tips, overtime, or bought a qualifying new car in 2025, talk to a tax professional before the deadline. These deductions require specific documentation, and getting them right now could mean hundreds or thousands of extra dollars in your refund.
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