Big beautiful refund? 5 tax code changes that may put more money in your pocket

The days are getting longer and W-2s are blooming, which can only mean one thing – the U.S. tax season is here.

Many Americans may receive a bigger tax refund than in previous years as a result of changes under what has been dubbed “One Big Beautiful Bill Act^[1],” a package of tax breaks and spending cuts that President Donald Trump signed into law on July 4, 2025.

The act renewed tax cuts originally put in place in 2017^[2] that had been set to expire at the end of 2025. Had that happened, one estimate^[3] shows the average individual filer would have seen a US$2,955 increase to their tax bill starting in 2026.

That hike would have come from factors including higher individual tax rates, while the standard deduction and child tax credit would have been slashed in half.

Instead, many filers can expect the new law to reduce their taxes for 2025 and beyond, with numerous provisions in place for the next three years.

Trump’s tax and spending package has introduced a variety of provisions^[4] aimed at benefiting a broad cross-section of individual taxpayers. The changes under the act are retroactive, meaning that even though the law was signed in July, taxpayers can treat the provisions as if they went into effect at the start of 2025.

Here are some of the new things 2025 filers should know about:

1. Increased deduction of state and local taxes

People subject to steep local and/or state taxes can now deduct a significantly larger portion^[5] of those assessments.

Allowable property, sales or income taxes paid to state and local governments in 2025 are deductible up to $40,000, or $20,000 for married filing separately. That’s up from the previous maximum of $10,000 and $5,000, respectively.

Higher income taxpayers – those with modified adjusted gross income exceeding $500,000, or $250,000 for those married filing separately – won’t be able to take full advantage of the $40,000 deduction. OB3 calls for gradual reductions in the deduction amount as income level rises.

In 2030, the state and local deduction reverts to the previous $10,000 limit, or $5,000 married filing separately.

2. Tip income deduction

Workers in approved occupations, such as hospitality, cosmetology or personal training, who receive qualified tips will be able to deduct up to $25,000 in tip income^[6] from their taxes for the first time.

This new deduction is phased out for single filers with a modified adjusted gross income over $150,000 and married couples filing jointly over $300,000.

This tax break^[7] is available through 2028.

3. Overtime pay deduction

Have earnings from working overtime? From 2025 through 2028, filers can take a deduction for pay exceeding their regular rate^[8].

For example, if an employee typically earns $20 per hour and earns $30 per hour when working overtime, they qualify for a deduction of the extra $10. The maximum annual deduction is $12,500, rising to $25,000 for joint filers.

As with many of these deductions, there is a phaseout for taxpayers with modified adjusted gross income over $150,000, or $300,000 for joint filers.

4. ‘Made in America’ car deduction

Purchased a new vehicle for personal use or thinking about buying one soon? From 2025 through 2028, buying a vehicle made in the United States^[9] means the filer can deduct vehicle loan interest.

Vehicles that qualify include cars, minivans, vans, SUVs, pickup trucks and motorcycles that underwent final assembly in the U.S.

The maximum annual deduction is $10,000. The deduction starts to phase out for taxpayers with modified adjusted gross income over $100,000; $200,000 for joint filers.

5. New deduction for seniors

For tax years 2025 through 2028, individuals older than 65 are eligible for a deduction up to $6,000^[10] or $12,000 total for a married couple when both spouses qualify. The deduction begins to phase out when modified adjusted gross income exceeds $75,000 or $150,000 for joint filers.

It’s important to note that this deduction is in addition to the existing senior deduction that was passed under a prior law.

This article is for informational purposes only and does not constitute professional tax advice. Please seek a qualified tax professional for advice based on your individual tax circumstances.

References

1. ^{^} changes under what has been dubbed “One Big Beautiful Bill Act (www.irs.gov)
2. ^{^} originally put in place in 2017 (taxpolicycenter.org)
3. ^{^} one estimate (www.ntu.org)
4. ^{^} variety of provisions (www.irs.gov)
5. ^{^} deduct a significantly larger portion (www.fidelity.com)
6. ^{^} deduct up to $25,000 in tip income (www.irs.gov)
7. ^{^} tax break (www.npr.org)
8. ^{^} filers can take a deduction for pay exceeding their regular rate (www.irs.gov)
9. ^{^} buying a vehicle made in the United States (www.irs.gov)
10. ^{^} eligible for a deduction up to $6,000 (www.irs.gov)