Millions of American taxpayers are poised to receive significantly larger tax refunds this year, as the Internal Revenue Service (IRS) begins processing federal tax returns for 2025. Refunds could surge by as much as 30% compared to previous years, driven by sweeping changes enacted under recent legislation signed by President Donald Trump.
Key Drivers Behind the Refund Boost
The anticipated increase in tax refunds stems primarily from the Big Beautiful Bill Act, which was signed into law last summer, alongside a new tax bill championed by the Trump administration. These legislative measures introduce a range of new deductions and credits designed to put more money back into the pockets of taxpayers.
Notable New Deductions and Credits
Among the most impactful changes are several new deductions that could substantially reduce taxable income for eligible individuals. Seniors aged 65 and over who receive Social Security income can now claim a federal deduction of $6,000. Additionally, workers may deduct qualified overtime pay up to $12,500 and tips up to $25,000, providing relief for those in service industries and high-hour roles.
The cap on the state and local tax (SALT) deduction, which has been a point of contention for taxpayers in high-tax states, has been temporarily raised to $40,000. This adjustment offers significant savings for residents in areas with steep property and income taxes.
Families will also benefit from an enhanced child tax credit, with the maximum amount increased to $2,200 per child. This boost aims to support household finances amid ongoing economic pressures.
Introduction of the Trump Account
A novel retirement savings vehicle, colloquially known as the "Trump account," has been established as part of the new tax framework. For each child born between 2025 and 2028, the government will contribute $1,000 into this account, incentivising long-term financial planning for young families.
Political Context and Future Implications
Howard Lutnick, Trump's Commerce Secretary, has publicly stated that the president's overarching goal is to abolish the IRS entirely. While this remains a long-term ambition, the current changes reflect a shift towards simplifying tax processes and increasing refunds for ordinary Americans.
As taxpayers begin to file their returns, the full impact of these new rules will become clearer. Financial advisors recommend that individuals review their eligibility for the new deductions and credits to maximise their potential refunds this tax season.
