A sweeping set of tax changes enacted under the One Big Beautiful Bill Act is reshaping the 2026 filing season, with more than 53 million taxpayers claiming at least one new deduction and average refunds climbing above $3,400, according to the U.S. Department of the Treasury.
The data signals a broad impact across income groups, particularly for workers earning overtime or tips, as well as homeowners in high-tax states.
Key Drivers Behind Bigger Refunds
1. Expanded SALT Deduction
The cap on state and local tax (SALT) deductions jumped from $10,000 to $40,000 for the 2025 tax year, marking one of the most significant changes.
The provision primarily benefits higher-income households and homeowners in states with steep property or income taxes. However, the benefit phases out for individuals earning above $500,000, ensuring the deduction does not disproportionately favor the ultra-wealthy.
Taxpayers must itemize to claim the deduction, limiting its reach to filers who forgo the standard deduction.
2. “No Tax on Overtime” Deduction
A new provision allows workers to deduct the extra portion of overtime pay—such as the “half” in time-and-a-half wages—reducing taxable income.
The deduction is capped at $12,500 for individuals and $25,000 for joint filers. It begins to phase out at incomes above $150,000 ($300,000 for couples). Notably, it applies regardless of whether a taxpayer itemizes.
3. “No Tax on Tips” Deduction
Roughly 6 million workers have claimed deductions on tip income, with average deductions exceeding $7,100.
The rule permits deductions of up to $25,000 in voluntary tips, including cash and credit card tips. However, mandatory service charges and automatic gratuities do not qualify, reflecting stricter IRS definitions of what constitutes a “tip.”
4. Car Loan Interest Deduction
For the first time, taxpayers financing new vehicles can deduct up to $10,000 in loan interest, even without itemizing.
Eligibility is limited to lower- and middle-income households, with income caps of $100,000 for individuals and $200,000 for joint filers. The deduction phases out entirely at higher income thresholds and applies only to new, domestically assembled vehicles.
An enhanced standard deduction provides an extra $6,000 for older Americans, with nearly 30 million seniors claiming the benefit. However, the lowest-income retirees—who often pay little to no tax on Social Security—see limited impact.
Beyond the targeted deductions, more than 105 million filers benefited from a doubled standard deduction, underscoring the law’s widespread influence.
While some provisions—such as overtime and tip deductions—do not alter tax rates directly, they lower taxable income, increasing refund potential.
The early data suggests the law is delivering immediate financial relief to millions, though its long-term fiscal impact remains under scrutiny.
