Tax-filing season has officially begun and will run though April 15.
Hassle though it may be to file your federal income tax return, if you are like a majority of US filers, you will get a refund soon after you do.
But this year, that refund may be noticeably larger – assuming nothing significant has changed about your financial or family life since 2024.
The average refund paid out last year was $3,167 through December 26, per IRS filing statistics. And the Treasury is now projecting tax refunds will increase by an average of $1,000 this year per household.
Why is that? Two main reasons: 1) Congress made a number of new and expanded tax breaks effective for tax year 2025; and 2) most people did not adjust the tax withholding on their paychecks last year to account for the changes in their tax breaks.
“For clients whose income, filing status, and dependents haven’t changed much since 2024, the combination of expanded tax benefits for 2025 and unchanged withholding is clearly pushing refunds higher,” said Tom O’Saben, director of tax content for the National Association of Tax Professionals.
Let’s first take that point on withholding.
Your tax liability for 2025 went down because of changes to the tax law, but your tax payments didn’t, he explained. “As a result, the ‘extra’ tax benefit shows up as a refund rather than increased take-home pay,” O’Saben said.
Or, for those who don’t usually get a refund, it may simply result in a lower overall tax bill.
While Congress made a bevy of tax changes for 2025 – e.g., offering a new tax break on car loan interest, a portion of tips and overtime pay; and a $200 increase per child in the child tax credit, etc., – the expansion of two common tax breaks and the introduction of a new one for seniors may account for the biggest increases in the average refund this year.
A larger standard deduction: The standard deduction is taken by the vast majority of filers. Congress boosted it by $750, to $15,750 for single filers; and by $1,500, to $31,500 for married couples filing jointly
“This is the most broadly impactful change because it affects millions of filers across income levels and filing statuses. Even modest increases in the standard deduction translate directly into lower taxable income,” O’Saben said.
An expanded SALT deduction: If you live in a high-tax state, you will be allowed to deduct up to $40,000 in state and local taxes (either your income or sales taxes plus property taxes). That is up from $10,000 last year.
You can only claim the deduction if you itemize, rather than take the standard deduction. But the jump in the how much you may deduct means it may make sense for more filers to itemize.
“This change can be significant and often produces a noticeable refund increase, especially when withholding was not adjusted,” O’Saben said.
A new senior deduction: It’s income restricted and limited to those filers who are 65 or older. But eligible senior citizens will be allowed to take a special $6,000 deduction ($12,000 for joint filers) on top of either their standard deduction or their itemized deductions.
“It can materially reduce tax liability,” O’Saben said.
The AARP estimates more than 30 million seniors will benefit.
A refund can be viewed in one of two ways: As an interest-free loan you made to the government, which is just paying you back your principal. Or as forced savings – money you might not have been diligent about setting aside had you gotten it in small installments throughout the year.
If you’re not a consistent saver, then getting a lump sum of forced savings may be a good strategy for you.
But if you think you want to do more with your money throughout the year – like letting it earn interest in an online high-yield savings account or using it to pay down your current debts more quickly – you might consider checking the tax withholding on your paycheck.
You may be seeing a little more in your paychecks already, because the IRS income tax withholding tables for 2026 have been adjusted, according to the Treasury. And those tables should account for all the tax breaks in effect for this year.
But if you work with a tax adviser, check with the adviser to see if the taxes currently being withheld from your paycheck are about right given your eligibility for the new and expanded tax breaks on offer.
Unfortunately, if you do it yourself, it can get a little complicated. And the IRS hasn’t yet updated its withholding estimator to incorporate all the tax changes that went into effect in 2025.
If you do make a change to your withholding (which you would do by submitting to your employer a new W4 form), it probably shouldn’t be drastic. “A modest adjustment rather than a large reduction [in taxes withheld] helps avoid underpayment issues while still improving cash flow during the year,” O’Saben recommended.
By that, he means, you might want to reduce your withholding just enough so that you still may end up getting a very small refund for a near break-even outcome. Otherwise, if you reduce your withholding too much, you might end up owing more than you expect to Uncle Sam when you file your 2026 return a year from now.
