Tax Season 2026: Sweeping Reforms Promise Fatter Refunds for Millions

This analysis is based on a report originally published by MyNorthwest.com.

The 2026 tax filing season has commenced under a new fiscal landscape. The sweeping "Tax Relief Act of 2025," signed into law last July, has ushered in the most substantial changes to the U.S. tax code in years, promising larger refunds and reduced liabilities for a broad swath of taxpayers.

Consumer advocate Herb Weisbaum of Checkbook.org notes the legislation was designed to offset the expiration of several pandemic-era breaks while introducing targeted support for middle- and working-class families. "We're seeing a deliberate push to put more money back in the pockets of everyday wage earners," Weisbaum stated.

According to analysis from the nonpartisan Tax Foundation, the changes are projected to yield an average tax cut of approximately $610 per household, boosting the average refund to around $3,800. Experts caution, however, that the windfall may feel pronounced this year as updated employer withholding tables only took effect in January, meaning many workers over-withheld for much of 2025.

Key Changes for Filers

The standard deduction, claimed by nearly 90% of filers, received a notable boost—an extra 5% increase on top of standard inflation adjustments. For the 2025 tax year, this raises the deduction to $31,500 for married couples filing jointly, $15,750 for single filers, and $23,625 for heads of household. An additional deduction of up to $6,000 is available for those 65 and older or who are blind.

Three new above-the-line deductions are generating particular buzz:

• Overtime Pay Deduction: Workers can now deduct up to $12,500 ($25,000 for joint filers) of qualified overtime earnings, applying specifically to the premium half of "time-and-a-half" pay.
• Tips Deduction: Employees in 68 IRS-designated occupations, such as servers and bartenders, can exclude up to $25,000 in qualified cash tips from taxable income.
• New Auto Loan Interest: Taxpayers who purchased a U.S.-assembled vehicle for personal use in 2025 can deduct up to $10,000 in loan interest, even without itemizing.

Itemizers, meanwhile, will benefit from a quadrupling of the State and Local Tax (SALT) deduction cap to $40,000, a move likely to provide relief for homeowners in high-tax states.

Filing Logistics and a Word of Caution

The IRS is mandating direct deposit for all refunds, eliminating paper checks. Weisbaum emphasized that error-free electronic filings typically see refunds processed within 21 days. He also offered a perennial reminder: a large refund, while welcome, often represents an interest-free loan to the government. "Adjusting your W-4 to have less withheld throughout the year can improve your monthly cash flow," he advised.

Reaction & Analysis

We reached out to several taxpayers and analysts for their take on the reforms.

"As a nurse who works a lot of overtime, seeing a direct deduction for that extra effort is a game-changer," said Marcus Chen, 42, from Denver. "It feels like the code finally recognizes the sacrifice of hourly workers."

Eleanor Vance, a CPA in Atlanta, offered a more measured perspective: "While the new deductions are politically popular, their complexity is a concern. The overtime and tips provisions, in particular, will require meticulous record-keeping from taxpayers and create new verification challenges for the IRS."

The response was sharper from David K. Miller, a political commentator from Ohio: "This is classic election-year candy wrapped in fiscal policy. These are temporary sweeteners that do nothing to simplify our byzantine tax system. When these credits sunset, families will be left with the same complexity and likely higher rates down the line."

For detailed guidance and links to IRS resources, visit Checkbook.org.