IRS data shows tax refunds up 10% this year as Trump tax cuts boost payouts for millions, but some miss out
As of March 27, IRS data indicates the average refund stood at $3,521; about $350 higher than the previous year. While that figure is somewhat lower than the White House estimate, both point to a meaningful increase compared with recent tax seasons.
Treasury data shows widespread use of the law’s provisions. More than 27.5 million taxpayers have claimed at least one of the new tax cuts so far. This broad participation underscores how quickly the policy changes have been integrated into filing behavior, even before the April deadline.
Several specific provisions are contributing to higher refunds. Over 3.5 million returns have claimed no tax on tips, while more than 15.5 million have claimed no tax on overtime. Another 9.2 million filers have used the enhanced deduction for seniors, and roughly 690,000 have deducted car loan interest. These targeted benefits are designed to reduce taxable income for different categories of workers and retirees.
White House credits “One Big Beautiful Bill” for gains
On 30th March, The White House account posted on X,
“KEEP MORE OF WHAT YOU EARN
Refunds are rising, and working families are seeing it firsthand.”
According to the White House, “Nearly 63 and a half million tax returns have been processed thus far — 45% of the anticipated total number of tax returns by April 15th… The average refund this year is more than $3,700,” press secretary Karoline Leavitt said during a March 10 briefing. The early data suggests a noticeable increase compared with prior years, putting extra cash in households’ hands.
Leavitt emphasized that Americans “are going to start benefiting from the fruits of President Trump and Republicans’ labor through the passage of the One Big Beautiful Bill and these historic tax cuts.” The White House argues the law is already delivering tangible financial relief.
A month ago, President Trump wrote in a recent post on Truth Social “Tax Refunds this year, because of ‘THE GREAT BIG BEAUTIFUL BILL,’ are substantially greater than ever before. In some cases, estimates are that over 20% will be returned to the Taxpayer.”
Trump also urged Americans to recognize what he described as the benefits of the legislation.
“So, when you get your Tax Refund, think about what a wonderful President you have — NO TAX ON TIPS, NO TAX ON SOCIAL SECURITY FOR OUR GREAT SENIORS, NO TAX ON OVERTIME, INTEREST DEDUCTIONS ON CAR LOANS AND MUCH MORE,” he wrote.
While the message may sound promotional, early figures from the Internal Revenue Service indicate that Americans are receiving larger tax refunds compared with the same point last year. “Average refund amounts are strong,” the IRS said in an explanation of the data. The agency added that refund totals are expected to grow further as more returns are processed, especially those claiming key credits like the earned-income tax credit and child tax credit.
The IRS also noted it “continues to see a strong filing season with refunds continuing to reach taxpayers as planned.”
New tax law may be influencing refund sizes.
President Trump has repeatedly highlighted the size of refunds as evidence of the law’s success. He said they “are substantially greater than ever before” and even cautioned taxpayers: “Don’t spend all of this money in one place!” In a later address, he added, “People are just now talking about receiving larger refunds than they ever thought possible… That’s from the great, big, beautiful bill.”
What Is the One Big Beautiful Bill Act?
Signed into law by President Trump in July 2025, the One Big Beautiful Bill Act is a sweeping spending and tax package that introduced broad-based tax cuts for individuals and families.
Crucially, many of these tax changes apply retroactively to the beginning of 2025, setting the stage for larger refunds when taxpayers file their returns in 2026.
Why Refunds Are Bigger Instead of Paychecks
Normally, tax cuts show up gradually as higher take-home pay. That didn’t happen this time.
Because the IRS did not update withholding tables after the OBBBA became law, most employers continued withholding taxes at pre-cut levels. The result? Workers effectively overpaid taxes throughout 2025 and will get that money back in one lump sum.
Seven Tax Cuts Fueling Larger Refunds
Seven major tax changes under the OBBBA could boost refunds, including:
An increased child tax credit
A higher standard deduction
A larger SALT deduction cap
New or expanded deductions for seniors
Deductions for auto loan interest
Expanded exclusions for tip income
New deductions for overtime pay
Together, these provisions significantly reduce tax liability for many households.
Tip Income Gets a Break
Under the new tax law, tip income will be deductible for tax years 2025 through 2028, whether or not you itemize your deductions.
This deduction applies to qualified tips; cash or credit card tips, earned in jobs the IRS identifies as customarily receiving tips as of December 31, 2024.
The Treasury Department published the official list of eligible occupations by October 2, 2025.
The maximum deduction is $25,000 per year.
For self-employed workers, the deduction cannot exceed the net income from the business where the tips were earned.
To claim it, taxpayers must include their Social Security Number on their return and file jointly if married.
The deduction gradually phases out for those with a modified adjusted gross income (MAGI) above $150,000 for single filers and $300,000 for joint filers.
No Tax On Overtime Pay
Unlike tips, overtime pay did not previously have separate reporting lines on Form W-2 because regular wages and overtime were taxed the same.
Under the new law, workers can claim a deduction for qualified overtime pay of $12,500 for singles and $25,000 for married couples filing jointly.
Like the tip deduction, this is a temporary deduction for tax years 2025 through 2028 and applies whether or not you itemize.
For this rule, overtime compensation is defined as the amount above your regular rate of pay; essentially the “half” portion of time-and-a-half pay. Only this extra portion qualifies for the deduction.
Taxpayers will use the new Schedule 1-A to claim recently enacted tax deductions, such as no tax on tips, no tax on overtime, no tax on car loan interest and/or the enhanced deduction for seniors
New Senior Deduction
Under the One Big Beautiful Bill Act (OBBBA), seniors age 65 and older can claim a new, temporary $6,000 deduction starting in 2025, which expires after 2028.
This deduction is available whether you take the standard deduction or itemize your deductions.
It serves as a substitute for Trump’s “no tax on Social Security” promise, as there is no separate provision for Social Security.
The deduction applies to taxpayers who are 65 or older by the last day of the tax year.
It is in addition to the current senior standard deduction and can be claimed by all eligible seniors, regardless of itemizing.
For married couples where both spouses qualify, the deduction doubles to $12,000.
Taxpayers must include their Social Security Number on the return and file jointly if married.
The deduction gradually phases out for those with a modified adjusted gross income (MAGI) above $75,000 for single filers or $150,000 for joint filers.
The administration has framed the law as eliminating taxes on Social Security, but the policy is more limited in scope. Instead, it provides a $6,000 deduction for older adults, reducing taxable income rather than eliminating taxes entirely. The benefit phases out for higher-income retirees and is estimated to save the average older adult about $670.
Auto Loan Interest Deduction
A temporary deduction allows taxpayers to deduct interest on qualified auto loans from 2025 through 2028.
It applies to personal use vehicles on a loan originated after 2024 with final assembly in America.
The deduction phases out for MAGI above $100,000 (single) or $200,000 (joint filers).
Retroactive application to January 1, 2025, provides relief to households paying higher auto loan interest.
Increased State and Local Tax (SALT) Deduction
OBBBA raises the SALT deduction limits for taxpayers paying high state and local taxes from $10,000 to $40,000. This cap is also scheduled to increase by 1% each year from 2026 to 2029.
Effective 2025–2028, more of your state income, property, and sales taxes can reduce federal taxable income.
Phase-outs start at $500,000 MAGI.
Residents of high-tax states stand to benefit most, with retroactive effect for 2025.
Permanent Increase in the Standard Deduction
The standard deduction is permanently increased under OBBBA: $15,750 for singles and $31,500 for married couples filing jointly in 2025, indexed annually for inflation.
This permanent boost simplifies filing for millions, reduces taxable income across the board, and complements temporary deductions for tips, overtime, and seniors.
Permanent Boost to the Child Tax Credit
The child tax credit is permanently raised to $2,200 per child. The credit will be adjusted annually for inflation starting in 2026.
Phase-outs apply at $200,000 MAGI for singles and $400,000 MAGI for joint filers. Fully refundable, it ensures low- and middle-income families receive the maximum benefit, further increasing expected refunds.
Who Benefits the Most From the Refund Surge?
Households with multiple workers, children, or qualifying deductions stand to gain the most.
Middle-income families are expected to see particularly noticeable increases, especially those who qualify for the enhanced child tax credit or standard deduction.
Not everyone will receive a massive refund, but millions could see checks larger than anything they’ve received before.
Analysts say the largest financial gains are flowing to higher-income households. The Tax Policy Center estimates about 60% of the law’s total tax savings will go to the top fifth of earners, those making more than $217,000 annually. While middle-income families may see a larger percentage increase relative to their income, wealthier households receive significantly larger dollar amounts
Recent changes also expanded benefits such as estate tax exemptions, allowing individuals to shield up to $15 million; or $30 million for couples from federal taxes on inheritance.
Economists watch refunds for economic impact
The Trump administration is openly predicting the largest tax refund cycle in U.S. history during the spring 2026 filing season, driven by the combination of retroactive tax cuts and unchanged withholding rates.
Refunds are often the largest single payment many households receive annually. With expectations of higher refunds in 2026, economists and investors are closely monitoring whether the extra cash will translate into increased consumer spending and broader economic activity.
Labor groups push for expanded eligibility for excluded workers
Key provisions come with restrictions that exclude large groups. Many railroad workers, truck drivers and other employees do not qualify for the overtime tax break due to how the law defines eligible income.
Similarly, the tips deduction is capped at $25,000, even for dual-income households where both partners rely heavily on tips. Additional limitations exclude certain types of tips, such as automatic service charges.
Unions and worker advocacy groups are already pushing for changes. The International Brotherhood of Teamsters says tens of thousands of its members are excluded from the overtime tax break and is advocating for expanded definitions. Similarly, the Culinary Workers Union in Las Vegas is lobbying to increase the cap on tip deductions and extend the provision beyond its current expiration date in 2028.
What Taxpayers Should Do Now
While the refunds may be welcome, experts caution that large refunds mean taxpayers effectively gave the government an interest-free loan. Going forward, workers may want to review and adjust their withholdings to better align with the new tax law.
Taxpayers should use the new Schedule 1-A to claim recently enacted tax deductions, such as no tax on tips, no tax on overtime, no tax on car loan interest and/or the enhanced deduction for seniors.
For now, though, millions of Americans can look forward to a rare surprise: a tax season that actually feels like a windfall.
Like Financial Freedom Countdown content? Be sure to follow us!
Did you find this article helpful? We’d love to hear your thoughts! Leave a comment with the box on the left-hand side of the screen and share your thoughts.
Also, do you want to stay up-to-date on our latest content?
1. Follow us by clicking the [+ Follow] button above,
2. Give the article a Thumbs Up on the top-left side of the screen.
3. And lastly, if you think this information would benefit your friends and family, don’t hesitate to share it with them!
John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
Here are his recommended tools
Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Platforms like Yieldstreet provide investment options in art, legal, real estate, structured notes, venture capital, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $10,000.
