The One, Big Beautiful Bill Act (OBBBA), signed earlier this year, rolled out a set of retroactive tax breaks that kicked in on Jan. 1. Economists following the rollout said the law’s seven key provisions could mean bigger tax refunds and smaller tax bills for millions of households. And this higher refund could feel a lot like getting another round of stimulus checks.
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This seemingly innocuous statement confirms that we will see in an even larger crop of personal income tax refunds early in 2026 than was anticipated when the OBBBA was passed,” said David Kelly, chief global strategist at J.P. Morgan, in an Aug. 25 post. “These higher income tax refunds should work much like a new round of stimulus checks, adding to consumer demand and inflation pressures early next year.”
Here are the tax changes you need to know.
No Income Tax on Tips
Effective for the years 2025 through 2028, employees and self-employed individuals may now be eligible for a new federal income tax deduction for qualified tips received in occupations that the IRS identifies as “customarily and regularly receiving tips” on or before Dec. 31, 2024.
According to the IRS, qualified tips include voluntary cash or charged tips received directly from customers or through tip-sharing arrangements, and must be filed on a Form W-2, Form 1099 or directly by the individual on Form 4137. The maximum annual deduction for qualified tips is $25,000.
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No Tax on Overtime Pay
Starting Jan. 1, 2025, a designated amount of qualifying overtime pay will also be exempt from federal income tax under the OBBBA. Most filers can deduct up to $12,500 or $25,000 (married filing jointly) in overtime pay from their taxable income.
The tax benefit phases out for higher earners, starting at $150,000 (single) or $300,000 (married filing jointly).
No Tax on Auto Loan Interest
Borrowers can now exclude the interest they pay on auto loans from taxable income. The maximum annual deduction is $10,000. But if you make over $100,000 ($200,000 for joint filers, you won’t be eligible for this deduction.
Bonus Deduction for Seniors
Taxpayers 65 and older can claim an additional $6,000 deduction ($12,000 for joint filers) on top of the standard deduction. Deduction phases out for those with modified adjusted gross income over $75,000 ($150,000 for joint filers).
Higher State and Local Tax (SALT) Cap
The OBBBA is also temporarily raising the state and local tax (SALT) deduction cap from $10,000 to $40,000 (phasing out for those earning $250,000 or more). This is a win for residents of high-tax states like New York, California and New Jersey.
Permanent Standard Deduction Increase
The standard deduction, the most common way Americans reduce taxable income, has now permanently increased due to the OBBBA. Starting in 2025, the new thresholds are $15,750 for single filers and $31,500 for married filing jointly.
Permanent Child Tax Credit Increase
Families with kids will also benefit from a permanently larger child tax credit, which directly lowers taxes owed or increases refunds. The 2025 federal child tax credit is $2,200, up from $2,000, and is indexed for inflation.
What This Means for Your 2025 Return
All these new breaks could mean a bigger refund or a smaller tax bill when you file next spring. J.P. Morgan estimates the IRS could process 110 million refunds for an average $3,743 payment in the current calendar year.
Don’t spend all your refund on shopping sprees, though. Make sure to put part of it toward high-interest debt, pad your emergency savings, or invest it for the long haul so your refund keeps paying off long after tax season.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: ‘New Round of Stimulus Checks’ — 7 Changes to 2026 Taxes You Need to Know
