Paycheck withholdings may have been higher this year under the new tax law

New provisions in the One Big Beautiful Bill Act (OBBBA) create deductions for tipped income, overtime and some older adults, and Treasury Secretary Scott Bessent said a large wave of refunds is expected in the first quarter of 2026.

A number of provisions in the One Big Beautiful Bill Act have created new deductions that affect 2025 taxable income. Officials have reported that many taxpayers may have had too much withheld and could receive refunds when they file 2025 returns by 15 April 2026. The Treasury secretary described the period as a potentially large refund quarter. Critics have also raised broader fiscal and policy concerns about the law. Key details: - Treasury Secretary Scott Bessent was reported as saying the first quarter of 2026 could be a "gigantic refund year." - Tipped workers: the law reportedly allows a deduction of up to $25,000 per individual for tipped income received in 2025. - Overtime pay: a new deduction is reported to allow up to $12,500 for individuals (up to $25,000 for joint filers) for qualifying overtime received in 2025. - Calculation note: the overtime deduction is reported to apply to the differential between regular and overtime pay (the article gave an example of a $20 regular rate and $30 overtime rate, with a $10-per-hour deduction basis). - Other changes: older adults are reported to receive an additional $6,000 deduction above the standard deduction in some cases, and small businesses are said to get higher first-year depreciation and research and development deductions. Flexible spending account contribution limits were reported as increased, and a new savings vehicle described in the article allows up to $5,000 per year to accrue tax-free for a child until age 18. - Caveats and limits: employment taxes (Social Security and Medicare) are not affected, both the tipped and overtime deductions phase out above $150,000 of income, not all tipped workers are eligible, and the IRS reportedly did not update W-2 forms in time and provided limited employer guidance. Summary: The reported effect of the law is likely to produce refunds for many 2025 filers and to change how some income is reported going forward. Officials have pointed to a concentrated refund period in early 2026, while guidance and reporting practices remain limited and critics have noted fiscal and policy concerns.