Tax Season Begins. Here’s Why Your Refund May Be Bigger This Year.

Many Americans will receive bigger refunds during the tax season that opens on Monday, as new provisions of Republicans’ tax and spending law take effect for the 2025 filing year.

The Internal Revenue Service said the agency expects to receive about 164 million individual income tax returns this year, with most taxpayers filing electronically. Average refunds will be up between $300 to $1,000 for the more than 100 million taxpayers who receive refunds, according to estimates from the Tax Foundation.

While refunds can feel like free money, it’s worth remembering that for the most part they are just a return of the money that you have overpaid the government, says Tom O’Saben, director, tax content & government relations, National Association of Tax Professionals. Because the 2025 tax law raised the standard deduction and added new deductions, workers who didn’t adjust the amount of taxes withheld from their paychecks during the year will likely have had too much withheld.

The main new deductions in the One Big Beautiful Bill are temporary, running for the duration of President Donald Trump’s term through the 2028 tax year, and are subject to income caps. They are available both to taxpayers who take the standard deduction and those who itemize their deductions.

Here are the main new deductions, which can be claimed on Schedule 1-A, a new attachment to the Form 1040 this year.

Senior Deduction

The new law didn’t eliminate taxes on Social Security benefits, O’Saben says. Rather, it provided for

Seniors age 65 and over may be eligible for the new, $6,000 senior deduction. Eligibility begins to phase out over $75,000 for individuals and $150,000 for joint filers where both spouses are 65 and older by year end. It completely phases out above $175,000 for singles and $250,000 for married couples filing jointly. For most seniors, your modified adjusted gross income for purposes of this deduction is simply your adjusted gross income.

No Tax on Tips

Employees and self-employed workers may deduct qualified tips they received in jobs that the IRS deems as “customarily and regularly receiving tips,” ranging from parking and valet attendants to hairdressers to plumbers. The maximum annual deduction is $25,000 and for self-employed workers can’t exceed the net income from your business. Eligibility phases out for taxpayers with modified adjusted gross income over $150,000 or $300,000 for joint filers.

No Tax on Overtime

Qualifying workers can deduct the portion of overtime pay that exceeds their regular rates for work in excess of 40 hours a week. For example, if your regular rate is $20 and you get $30 in overtime, you can deduct the $10, O’Saben says.

Maximum annual deduction is $12,500 or $25,000 for joint filers, and phases out phases out for taxpayers with modified adjusted gross income over $150,000 or $300,000 for joint filers.

No Tax on Car Loan Interest

Consumers who bought a car in 2025 and took out a loan to finance it may be able to deduct up to $10,000 of the loan interest. To qualify, the car needs to have its final assembly in the U.S. You can put your vehicle identification number into this site to see if it qualifies. This deduction phases out for taxpayers with modified adjusted gross income over $100,000, or $200,000 for joint filers.

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com