President Donald Trump’s recently passed “One Big Beautiful Bill” Act is set to introduce notable changes to the tax landscape, potentially leading many Americans to receive larger refunds in the upcoming tax year. This legislation, enacted in July, aims to extend the tax cuts established in 2017 while also introducing new benefits for various groups, including older Americans and families with children.
Among the key adjustments are fresh deductions for Social Security benefits aimed at seniors, an increased child tax credit, and new deductions for individuals receiving tips or overtime pay. However, employees might not see immediate changes reflected in their paychecks as the IRS has opted not to alter withholding rates during the transition to the new law. As a result, many workers could be seeing higher amounts withheld from their paychecks than necessary, which could translate into larger tax refunds once they file in 2026.
According to Erica York, vice president of federal tax policy at the Tax Foundation, the current situation means that instead of benefiting from modified withholding immediately, taxpayers will have to wait until they file their returns to reap the rewards. The Tax Foundation anticipates that the average tax refund could increase significantly, projecting a rise from $3,052 in 2024 to $3,800 for the 2025 tax year. Individuals’ refunds may vary based on income levels, dependents, and specific circumstances.
The changes are primarily expected to benefit middle- to upper-middle-income earners, while low-income earners, who have minimal tax liability, and high-income earners, who may not qualify for many of the new deductions, will see less impact. Factors such as the number of dependents and state residency will further influence the final refund amount. For example, families with children will benefit from the increased child tax credit, and those in states with high local taxes, like New York and California, may find relief through an increased deduction cap for state and local taxes.
Despite the optimistic outlook for larger refunds, it’s important to recognize that taxpayers may experience varying levels of benefit. Some might see only a slight increase depending on their specific tax situation. As taxpayers prepare for the upcoming tax filing season, the IRS’ revised withholding tables for 2026 will ensure that future paychecks reflect these tax cuts.
Taxpayers are encouraged to review their W-4 forms to ensure that withholding levels align with their financial circumstances, particularly if they anticipate alterations in income or tax liability following this year’s refund.