When you file your tax returns this year, you may see larger refunds than usual due to the One Big Beautiful Bill Act, which reduced individual income taxes for 2025 by an estimated $129 billion, according to the Tax Foundation.
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So here are three tax changes taking effect this year and what they mean for your tax refund.
Higher SALT Deduction Cap
If you itemize on your tax return, you can deduct certain state and local taxes (SALT) you paid during the year.
The bill boosted the SALT deduction limit to $40,000 for 2025, up from the previous $10,000 cap. The SALT deduction limit will increase by 1% per year through 2029 and revert to $10,000 in 2030.
The higher cap makes it a lot easier to fully deduct your state and local taxes, and for some people, this change can make itemizing a better option than the standard deduction. But note that if you’re in a higher tax bracket, you might not be able to take advantage of the increased limit.
For the 2025 tax year, the $40,000 cap is reduced by $0.30 for every dollar of modified adjusted gross income (MAGI) over $500,000 ($250,000 for married people filing separately). The threshold limits will also increase by 1% each year until 2030.
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New Deduction for Tipped Workers
Starting this tax year, a new federal tax deduction allows tipped workers to deduct up to $25,000 in reported tips per year.
Whether you’d benefit from the new deduction for cash tips received on the job depends on your occupation and employer. You must have received tips while performing a job that “customarily and regularly” involved tipping before 2025, such as a bartender, waiter, hairdresser or ride-share driver. The Treasury Department’s website has a full list of qualifying jobs.
If you have a qualifying job, you could deduct up to $25,000 of cash tips you received in 2025, but the deduction is gradually phased out if your MAGI exceeds $150,000 (or $300,000 for joint filers).
New Deduction for Overtime Pay
The bill also created a new deduction for overtime pay. It allows workers to deduct up to $12,500 (or up to $25,000 for joint filers) in overtime compensation from their taxable income. But similar to the deduction for tipped workers, the tax break starts to phase out when earnings exceed $150,000 for single filers or $300,000 for joint filers.
Note that the overtime deduction is available to both taxpayers who claim the standard deduction and those who itemize. If you’re married, you must file jointly with your spouse to qualify.
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This article originally appeared on GOBankingRates.com: 3 Tax Changes Taking Effect in 2026 — and What They Mean for Your Refund
