The Taxman Still Cometh, But May Take Away Less

When Uncle Sam comes knocking at your door this April, you may owe him less than you think. If you’re lucky, he might even deliver a refund, one that’s bigger than you expect.

That’s because taxpayers this year are filing returns in the aftermath of the One Big Beautiful Bill Act, which delivers on a variety of President Trump’s 2024 campaign promises, such as eliminating taxes on tips and Social Security, even though Congress watered them down somewhat before sending the legislation to the Oval Office for his signature. Does a green light from Trump for a sweeping piece of legislation that significantly alters the tax code sound familiar? If you were paying attention in 2017, it surely does. 

Early in his first term as president, Trump signed into law the Tax Cuts and Jobs Act (TCJA), which made huge changes to individual Americans’ income taxes. Many of the temporary provisions included in that law would have ended after 2025, though, if lawmakers hadn’t intervened via the OBBBA. 

Taxpayer Takeaway

The Big Beautiful Bill decreased individual income taxes for 2025 by an estimated $129 billion, which may yield a pretty penny for individual taxpayers, especially this year, according to the Tax Foundation. 

“Because the IRS did not adjust withholding tables after the law passed, workers generally continued to withhold more taxes from their paychecks than the new law required,” Tax Foundation experts wrote in a recent analysis of the bill. “As a result, instead of gradually receiving the benefit of the tax cuts through higher take-home pay during the year, most taxpayers will receive it all at once when they file their returns.” 

The foundation estimates the average tax cut from major provisions taking place in 2025 will be $611, with middle- and upper-middle-income taxpayers accounting for the largest share of beneficiaries. (The highest-income filers aren’t eligible, for the most part, and lower-income taxpayers with little or no tax liability aren’t likely to see much of a change either). Put another way, the estimated average tax refund come April will be $3,800 compared with $3,052 for tax year 2024 and $3,004 for tax year 2023. 

Set in Stone, Sort Of 

The House Bill, named in honor of Trump’s plan to enact an array of policy initiatives from higher defense spending to benefit cuts at once, makes the tax rates and brackets set under the TCJA (10%, 12%, 22%, 24%, 32%, 35% and 37%) permanent, at least for now. This may not seem like a big deal, since you’ve probably gotten used to the perks of those lower tax rates. But had the new law not memorialized the current rates, almost all taxpayers likely would have owed more this year. 

“That was a major uncertainty, unknown and a risk for taxpayers last year,” William McBride, chief economist at the Tax Foundation, told The Daily Upside. 

Starting in 2026 (effective for the taxes you’ll file in 2027), there’s also an inflation adjustment for the two lowest brackets. “In practical terms, that means all taxpayers will see slightly lower taxes, no matter their income level,” Hayden Adams, director of tax planning and wealth management research at Charles Schwab, wrote recently. 

A Higher Standard

As you may know, the TCJA increased the standard deduction, which is a set amount of money the IRS allows you to subtract from your taxable income, decreasing what you owe. Taxpayers may opt to itemize their deductions instead, which can make sense if the amounts (including mortgage interest payments, property taxes, charitable donations and more) add up to a larger total than the standard deduction, but nearly 90% of taxpayers take the simpler option.  

The OBBBA, later referred to as the Working Families Tax Cuts Act to heighten its appeal to voters, increased the standard deduction even more than the TCJA did, to $15,750 for single filers and $31,500 for married couples filing jointly. 

SALT-ier Deduction 

The state and local tax (SALT) deduction lets taxpayers who itemize deduct some of the taxes they’ve paid to state and local governments — think sales, real estate and wage taxes. The OBBBA raised the cap on those deductions for taxpayers earning less than $500,000 to $40,000, increasing by 1% annually until 2029, when it is set to return to $10,000. For people earning more than $500,000, the deduction phases down. 

Before the 2017 tax bill, there was no limit on the SALT deductions, and the cap frustrated residents of large metropolitan areas like New York, who found themselves paying significantly more because of the change. Some high earners relocated to save money.

“When people file their taxes now through April, folks that were affected by the SALT caps — folks in big cities — will see significant tax relief for tax year 2025,” McBride says. “That’ll be a big boost in refunds, and should provide consumers a lot of extra cash that many of them are not expecting.” 

Scott Schwartz, a managing partner at OnePoint BFG Wealth Partners, says this is the change he sees moving the needle the most. 

“For your middle-class, upper-middle-class person who is making really good money, those people probably benefit this year going forward from itemized deductions,” Schwartz says. 

A Tipping Point

Other sections of the bill enact versions of the popular tax cuts Trump touted while running for a second term in the White House. 

For instance, the president called for the elimination of income tax on Social Security benefits. While the Big Beautiful Bill doesn’t go that far, it does give taxpayers over age 65 an additional $6,000 deduction through tax year 2028. The deduction begins to phase out when the filers earn more than $75,000 (or $150,000 for married couples filing jointly). 

The president also promised an end to taxes on tips. For tax years 2025 through 2028, there’s a deduction for up to $25,000 in tip income that declines gradually for people making more than $150,000 ($300,000 for married couples filing jointly). The OBBBA also introduced a deduction of up to $12,500 for overtime income, with the same phase-out limits.

Meanwhile, the child tax credit — a tax break for families with qualifying kids — got a $200 bump to $2,200. And there’s a new $10,000 deduction for car loan interest that starts phasing out for taxpayers with income above $100,000 ($200,000 for married couples filing jointly). 

Because of the variety of changes, generalizing the overall effects of the law on taxpayers is tricky.

“It’s going to be different for you than it is for me,” Schwartz says. “It’s going to be different for everyone depending on what your individual circumstances are.”