The One Big Beautiful Bill Act (OBBBA) — signed into law on July 4, 2025 — is projected to trigger some of the largest federal tax refunds Americans have seen heading into the 2026 filing season because it enacted new deductions, higher standard deductions, expanded credits, and permanent tax-law changes that will reduce tax liabilities retroactively for 2025 and going forward. Millions of taxpayers who didn’t adjust their paycheck withholding — especially workers earning qualified tips, overtime, and vehicle loan interest, families claiming expanded child tax credits, and seniors eligible for new age-based deductions — could see refund checks far above historical averages.
What Is the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act (OBBBA) — also known as Public Law 119-21 — is the major tax and budget law passed in mid-2025 that reshapes large portions of the tax code, many of which directly affect individual tax liability. It extends key provisions of the Tax Cuts and Jobs Act (TCJA), makes new deductions available, raises caps, and adjusts phase-outs.
Here’s the crux: by raising deductions, broadening eligibility for credits, and keeping low tax brackets in place, the law lowers taxable income, which means taxpayers have over-withheld all year on a higher effective tax burden than they ultimately owe — and the IRS refunds that difference when returns are processed in early 2026.
Why Are Tax Refunds Expected to Be “Gigantic”?
1. Retroactive Tax Reductions for 2025
Treasury officials and IRS projections suggest refunds next spring could average $1,000–$2,000 higher per household — potentially even higher for some taxpayers — because the OBBBA’s provisions apply to tax year 2025, but most people didn’t adjust their withholding.
How this happens:
Payroll withholding throughout 2025 was based on pre-OBBBA tables. But because the law introduces lower effective income tax liabilities, employers continued to withhold more than what will ultimately be owed. The difference becomes a refund when you file your 2025 return in 2026.
Who Is Likely to See the Biggest Refunds?
Here are the taxpayers most likely to qualify for large refunds in early 2026:
✔ Workers Earning Tips and Overtime
One of the OBBBA’s most talked-about provisions is new deductions for:
- Qualified tips — up to $25,000 deduction annually
- Qualified overtime pay — up to $12,500 deduction per individual
These reduce taxable income significantly for workers in the service and labor sectors compared with past law.
✔ Families Claiming Expanded Tax Credits
The Child Tax Credit was permanently increased under the OBBBA to $2,200 per qualifying child for 2025 and indexed for inflation in subsequent years, offering larger refunds for families.
✔ Seniors and Older Taxpayers
Taxpayers age 65 and older now qualify for an extra $6,000 deduction beyond the standard deduction, subject to phase-outs based on income. This has a big impact on reducing taxable income for elderly households.
✔ Homeowners and Vehicle Buyers
The new law also added deductions for:
- Qualified passenger vehicle loan interest — up to $10,000 annually (with eligibility restrictions)
- Expanded SALT deduction caps — allowing up to $40,400 (and phase-outs for high earners) in 2026 versus the old $10,000 cap.
These deductions can further reduce tax liability for homeowners and commuters, especially in high-cost states.
✔ Pass-Through Business Owners
The OBBBA makes the 20% Qualified Business Income (QBI) deduction permanent and expands phase-out thresholds (e.g., to $75,000 single/$150,000 joint), so more small business owners and freelancers may qualify for larger deductions.
How Withholding Changes Affect Your Refund
No Immediate 2025 Withholding Table Changes
Importantly, the IRS confirmed there were no changes to withholding tables for 2025, meaning employers did not change payroll withholding during the year to reflect most OBBBA benefits.
This is a key reason refund checks are expected to be large: you paid tax at a higher rate than you actually owed under the new law.
Updating Your 2026 Withholding
If you want to avoid over-withholding going forward, the IRS recommends:
- Submitting a new Form W-4 to your employer
- Using the IRS Tax Withholding Estimator or the OBBBA deduction worksheet
- Re-checking withholding at the beginning of 2026 to account for new deductions such as tips, overtime, and vehicle interest.
Tax professionals typically advise updating W-4 early in the year to smooth out withholding and avoid large refunds or underpayments.
Who Might Not See a Refund Increase
While many taxpayers will benefit, some may not see gigantic refunds:
- Those who adjusted withholding during 2025 proactively to reflect OBBBA benefits may smooth refunds.
- Taxpayers with multiple jobs and complex withholding situations may still under-withhold without planning (look for mismatches between jobs).
- Workers not eligible for the new deductions (e.g., certain mandatory service charges instead of voluntary tips) won’t benefit directly.
Practical Examples: What This Looks Like in Real Households
From decades covering tax policy, the contrast between prior law and the OBBBA’s changes really shows up in real numbers:
- A bartender earning $50,000 with $15,000 in qualified tips could see a taxable income reduction that meaningfully boosts their refund over prior years because of the new tip deduction and higher standard deduction.
- A married couple filing jointly with two kids could see several additional hundred dollars in refund due to the enhanced Child Tax Credit alone — and more if they qualify for expanded SALT or QBI deductions.
- A senior taxpayer who didn’t itemize in the past now sees a $6,000 extra deduction — a direct reduction in taxable income that can turn into a sizable refund.
These examples illustrate how the OBBBA’s provisions stack up — not just on paper, but in refund outcomes.
Penalties and Caution: Don’t Over-claim
While generous, the OBBBA also expanded certain penalty provisions — for example, the penalty on erroneous refund claims related to employment taxes was broadened to impose up to a 20% penalty on excessive refunds claimed after July 4, 2025. Taxpayers (especially businesses) must exercise care when claiming credits or deductions to avoid penalties.
Preparing for Tax Filing in 2026
If you expect a large refund in 2026:
- Gather detailed records of:
- Reported and qualified tips
- Overtime wages
- Vehicle loan interest
- Child care expenses and dependents
- QBI documentation
- Consider filing early — the IRS often processes refunds more quickly when returns are accurate and complete.
- Work with a qualified tax professional, especially if you have complex income or multiple deductions.
Tax prep software and tax advisors are updating guidance to reflect OBBBA changes — but you still must claim the deductions you qualify for; none of them are automatic on your return.
Conclusion: Gigantic Refunds — A Once-in-a-Generation Tax Season
The One Big Beautiful Bill Act is changing the tax landscape in a fundamental way. By expanding deductions, enlarging credits, making permanent certain tax breaks, and raising limits, it sets up 2026 as a year in which many taxpayers receive significantly larger refunds than they’re used to.
But here’s the editorial insight from numerous tax seasons and legislative flips: refund size isn’t luck — it’s planning. If you understand how OBBBA provisions affect your 2025 tax liability and adapt your withholding now, you can both maximize your refund and avoid the common pitfalls that lead to unwanted tax bills.
In early 2026, millions may be surprised at how much the government returns to them — but only if they file correctly and claim the benefits they both deserve and are legally entitled to under this expansive new law.
