The Internal Revenue Service (IRS) has rolled out automatic inflation adjustments for tax year 2025, with filings taking place during the 2026 season. These changes have the potential to impact taxpayers positively by increasing refunds or reducing payments owed.
Key Changes for 2025 Tax Filings
The standard deduction has been raised to $15,000 for single filers and $30,000 for married couples filing jointly. At the same time, updates have been made to the income tax brackets, Alternative Minimum Tax (AMT) exemption thresholds, and Earned Income Tax Credit (EITC) parameters.
These changes, based on inflation calculations tied to the Consumer Price Index, could result in a lower final tax liability.
The end result could be bigger tax refunds or lower payments due when filing in 2026. Let’s break down the main changes.
Bigger Refunds in 2025? Here’s What the IRS Says
The “One Big Beautiful Bill” (OBBB) legislation introduces significant changes to the tax code:
The SALT (State and Local Tax) deduction cap has been raised from $10,000 to $40,000 for joint filers and $20,000 for individuals. This will benefit those in high-tax states or cities.
New deductions have been introduced for specific wage income, including:
Up to $25,000 for tip income.
Up to $12,500 for overtime pay, subject to income limits.
The Child Tax Credit (CTC) has increased from $2,000 to $2,200 per child, which will boost potential refunds for families with dependent children.
A temporary additional deduction for taxpayers over 65 will provide up to $6,000, helping reduce their taxable income.
A new interest deduction is available for loans used to purchase vehicles assembled in the U.S., capped at $10,000.
How This Affects Refunds in 2026
While these changes will benefit many, it’s important to note that federal income tax withholding tables and core tax forms like W-2 and 1099-NEC will remain unchanged for tax year 2025. This means the amount withheld from wages throughout the year will remain steady.
However, with expanded deductions and increased credits, taxpayers may see larger refunds when filing in 2026. Preliminary reports indicate that the average tax refund for the 2025 season has already seen an increase of 3.3%, reaching about $2,945. This early growth is largely due to the automatic inflation adjustments to basic deductions.
Potential for Even Bigger Refunds in 2026
The full impact of the OBBB Law will likely be seen in the 2026 filing season, as the newly introduced benefits begin to take effect. This could result in even larger refunds for taxpayers.
Additionally, a tax reform proposal from House Republicans is under discussion. This draft includes several provisions that could further boost refunds, such as:
A broader Child Tax Credit expansion.
A $4,000 deduction for filers over 65.
The formalization of overtime and tip deductions.
The creation of specialized children’s savings accounts, referred to as “MAGA type plans.”
If approved, these changes could affect the 2026 refund season.
