IRS Made Major Changes Leading to Extra $775 Refund
The United States is in the thick of tax season, and those who have filed their taxes already might have found that their tax returns are significantly larger this year than they were last year, and there's a reason for that.
Ahead of tax season, the Internal Revenue Service (IRS) has unveiled some significant updates to federal tax deduction rules for individuals, families, and businesses after the One, Big, Beautiful Bill Act (OBBB), which was signed into law on July 4, 2025.
As a result of the new law, the IRS has implemented several high-profile new deductions that have brought tax relief to millions of Americans across the country with those qualifying seeing an extra $775 refund on average.
Here is a rundown of what has changed and how Americans are already taking advantage.
Changes to Tax Code
- Standard Deduction Increase: Standard deductions are increasing across the board for the 2025 tax year. Singles and married couples filing separately will see their deduction rise from $14,600 to $15,750, while married couples filing jointly will go from $29,200 to $31,500, and heads of households from $21,900 to $23,625.
- No Tax on Tips: Employees and self-employed workers in IRS-listed tipped occupations can deduct up to $25,000 annually in qualified tips received between 2025 and 2028, defined by the IRS as voluntary cash or charged tips from customers or tip-sharing arrangements. The deduction phases out for individuals earning above $150,000 (or $300,000 for joint filers), and self-employed filers cannot deduct more than their net income.
- No Tax on Overtime: From 2025 to 2028, workers who receive qualified overtime can deduct the portion of pay exceeding their regular rate, which is essentially the "half" in time-and-a-half as required by the FLSA. The deduction maxes out at $12,500 for individual filers and $25,000 for joint filers, phasing out above $150,000 and $300,000 in income, respectively.
- No Tax on Car Loan Interest: From 2025 to 2028, individuals can deduct up to $10,000 annually in interest paid on loans used to purchase new, American-made vehicles for personal use. The loan must have originated after December 31, 2024, and the deduction does not apply to used vehicles, commercial vehicles, or cars manufactured outside the United States.
- Deductions for Seniors: Individuals 65 and older can claim an additional $6,000 deduction from 2025 to 2028, on top of the existing standard deduction for seniors. Married couples can double that to $12,000 if both spouses qualify. The deduction phases out for individual filers earning above $75,000 and joint filers above $150,000.
Millions of Americans Qualify
During a House Ways and Means Committee earlier this month, IRS CEO Frank Bisignano told lawmakers that so far, more than 4 in 10 of the roughly 55 million tax returns filed this tax season have included at least one of the several new deductions.
That means that more than 22 million Americans have been able to use a tax deduction this tax season that did not exist last year, and that number will continue to grow as tax season continues
Additional $775 Refund on Average
As a result of the new deductions, the IRS reports that refunds are already running higher this year, with the average refund reaching $3,804, which is about 10 percent higher than the average return at this time last year.
Among the millions of households and individuals that are able to claim one or more of these new deductions, their tax returns have been increasing by several hundred dollars as Bisignano said those qualifying for one of these new deductions has seen an additional $775 refund on their taxes, on average.
It's worth noting, however, that not everyone will qualify for one of these tax deductions, so it's important to keep your expectations realistic when filing your taxes this season.