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Filing taxes can be a pain, but there’s a compelling reason to get a headstart this year: A surprisingly hefty refund might be waiting for you on the other side of that paperwork.

Tax breaks passed by Congress last summer could boost the average federal refund by $675, according to one analysis. For middle- and higher-income households, it could be a $1,000 bump.

Of course, tax refunds vary widely depending on your income and tax liability — and there’s no guarantee you won’t owe money instead — but this year’s refunds stand to be unusually large because the IRS didn’t update its income tax withholding tables after the tax breaks were retroactively applied to the 2025 tax year.

In short, the One Big Beautiful Bill Act added several new types of tax deductions, most of which can be taken in addition to the standard deduction amount (which was also increased.) Here’s how they could reduce your taxable income for 2025:

•  If you earned tips from a qualifying occupation (here’s a list,) you can deduct up to $25,000 in tip income as long as you had less than $150,000 in modified adjusted gross income (MAGI). This deduction, which can be taken on top of the standard deduction, gets smaller if your MAGI is higher than that.

•  If you work overtime, you can deduct the “half” portion of your “time-and-a-half” pay, up to $12,500. This can also be taken on top of the standard deduction, and the income limitations are the same as for tips.

•  If you’re a homeowner who lives in a high-tax state, the cap on SALT (state and local tax) deductions increased from $10,000 to $40,000, but only for taxpayers who itemize their deductions. This benefit phases out if you had over $500,000 in MAGI. (If you’re not sure if you’re better off itemizing or taking the standard deduction amount, consult a tax professional.).

•  If you borrowed money to buy a new American-made car last year, you can deduct up to $10,000 for the auto loan interest you paid as long as you meet certain eligibility criteria (it can’t be a used car, for example) and didn’t earn more than $100,000 in MAGI. This can be taken on top of the standard deduction and there’s a phaseout for higher incomes.

•  If you’re 65 or older, you can deduct an extra $6,000 as long as you didn’t have over $75,000 in MAGI. Again, this is in addition to the standard amount for seniors and a phaseout applies.

So what?

Since the average 2024 tax refund was over $3,100, the new tax breaks could feel like a windfall of over $3,800 for many Americans. But if you don’t have a plan, you might absorb it into your budget with little or nothing to show for it.

No matter how big or small, if you get a refund this year, make the most of it. You can still treat yourself, but you won’t regret using a solid chunk to pay down debt, bolster your emergency savings, or boost your retirement account.

Related Reading

Tax Refunds and the One Big Beautiful Bill Act (Tax Foundation)

Prepare to File in 2026: Get Ready for Tax Season with Key Updates, Essential Tips (IRS)

Trump Promises Largest Tax Refunds Ever in 2026 (Fox News)

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