Why Is My Tax Refund Larger This Year?

If you’ve filed your taxes already, you may have noticed a larger refund this year. That’s due to changes Congress made with the One Big Beautiful Bill Act (OBBBA) last year that retroactively cut taxes for 2025.

The OBBBA Cut Income Taxes

Congress passed major tax reform last year in the OBBBA. The law made many of the expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent, including lower ordinary individual income rates and wider tax bracketsA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat., a larger standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. Taxpayers who take the standard deduction cannot also itemize their deductions; it serves as an alternative. and child tax credit (CTC), and limits on itemized deductions, such as the home mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act (TCJA) reduced the amount of principal and limited the types of loans that qualify for the deduction. and the state and local tax deductionA tax deduction allows taxpayers to subtract certain deductible expenses and other items to reduce how much of their income is taxed, which reduces how much tax they owe. For individuals, some deductions are available to all taxpayers, while others are reserved only for taxpayers who itemize. For businesses, most business expenses are fully and immediately deductible in the year they occur, but ot (SALT).

If Congress hadn’t done this, 62 percent of taxpayers would have seen a tax hike in 2026 after the TCJA provisions expired.

Additionally, the OBBBA made seven major individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source cuts that took effect in 2025. These range from a $200 increase in the CTC maximum, a $750 increase to the standard deduction for single filers (or a $1,500 increase for joint filers), and a $30,000 increase to the SALT deduction cap to new temporary deductions for seniors, auto loan interest, tip income, and overtime income.

All told, taxpayers from across the income spectrum benefited from the OBBBA’s tax cuts, raising after-tax incomes by 1.6 percent on average in 2025.

But What About the Refunds?

The OBBBA cut taxes last year, but it is showing up in this year’s tax refunds because of tax withholdingWithholding is the income an employer takes out of an employee’s paycheck and remits to the federal, state, and/or local government. It is calculated based on the amount of income earned, the taxpayer’s filing status, the number of allowances claimed, and any additional amount the employee requests.. After the OBBBA passed, the IRS didn’t change withholding tables for 2025. Employers use these tables to determine how much income tax to withhold from an employee’s paycheck, and by using the original 2025 withholding tables, many workers will find they over-withheld taxes.

In other words, your larger-than-ordinary tax refundA tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in a tax refund for millions. Overpaying taxes can be viewed as an interest-free loan to the government. On the other hand, approximately one-fifth of taxpayers u is because Congress cut taxes for 2025 and withholding continued without adjustments, meaning many taxpayers ended up withholding too much.

Collectively, the Tax Foundation estimates the OBBBA’s tax cuts for 2025 reduced individual income taxes by $129 billion, and that will show up as a mix of larger tax refunds and lower tax liability due at filing. Outside estimates suggest the OBBBA will result in up to $100 billion in higher refunds in 2026, with average refunds increasing between $300 to $1,000 compared to a typical year. However, refund size may vary considerably depending on taxpayers’ unique circumstances, such as their level of income, marital status, whether they claim any dependents, and which new OBBBA deductions they claim.

Sometimes taxpayers conflate their tax liability and refund amounts. Though refunds will be higher this year because of tax cuts, in typical years, a change in the size of a tax refund does not necessarily indicate a change in a person’s overall tax burden. To understand your true tax burden, you need to look at how much total income tax you paid compared to how much income you earned.

In most years, a tax refund doesn’t tell you much about your tax burden. This year, because Congress cut taxes for 2025 and the IRS didn’t update withholding tables, many taxpayers will see their refunds increase. Going forward, the IRS has updated withholding tables to reflect the new tax law, so less tax will be withheld and take-home pay will rise.

The OBBBA delivered tax relief to taxpayers, preventing taxes from increasing and providing certainty with permanent cuts in marginal tax rates. Many taxpayers can also expect to receive a larger-than-normal tax refund this year.

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