Millions of taxpayers with US income obligations could be in line for significant refunds when they file their 2025 returns, according to financial experts. This unexpected windfall stems from recent legislative changes and administrative delays that caused widespread over-withholding.
Why Overpayments Occurred: The Shutdown and New Deductions
The recent US government shutdown created a critical bottleneck at the Internal Revenue Service (IRS). As a result, the agency lacked the time to update the official W-2 wage reporting forms for the 2025 tax year. These forms, used by employers to report employee earnings, did not reflect new deductions introduced under the One Big Beautiful Bill Act (OBBBA).
Consequently, payroll systems across countless businesses continued to withhold taxes based on the old rules. This means that for many eligible individuals, too much tax was deducted directly from their paychecks throughout the year. The onus is now on taxpayers to identify and claim these deductions themselves when filing.
Key Groups Eligible for 2025 Tax Refunds
Several specific demographics stand to benefit from the OBBBA's provisions. Service workers who receive tips can now deduct up to $25,000 per individual on their tipped income. Similarly, employees who received overtime pay in 2025 can deduct up to $12,500 of that pay, or $25,000 for joint filers.
It is crucial to understand the calculation for overtime: the deductible amount is only the premium portion. For example, if your normal rate is $20 and you were paid $30 for overtime, the deduction applies to the $10 difference. Experts warn that employers may not have calculated this correctly, so taxpayers must verify the figures.
Other beneficiaries include:
- Older adults, who receive an additional $6,000 deduction above their standard allowance.
- Small business owners, who can claim higher deductions for first-year depreciation and R&D costs.
- Individuals utilising Flexible Savings Accounts (FSAs) and the new "Trump Savings Accounts" for newborns.
Important caveats apply: these deductions begin to phase out for individuals earning over $150,000. Not all tipped workers are eligible, and state taxes may still be due. Social Security and Medicare contributions remain unaffected.
How to Claim Your Refund and Adjust for the Future
Treasury Secretary Scott Bessent has predicted a "gigantic refund year in the first quarter" of 2026. To secure your refund, you must file your 2025 tax return by the 15 April 2026 deadline and ensure you claim all applicable new deductions.
More importantly, if you receive a substantial refund, it is a sign your withholding was incorrect. You should proactively adjust your W-4 withholding form for the 2026 tax year to reflect your lower taxable income. This will increase your net pay throughout the year, rather than giving the government an interest-free loan.
While the OBBBA remains politically contentious, its tax benefits are now law. For eligible taxpayers, the message is clear: review your return carefully, claim what you are owed, and take control of your payroll deductions to maximise your take-home pay moving forward.
