The first tax filing season under the One Big Beautiful Bill Act is producing bigger refunds and unexpected claim patterns, according to an April 10 analysis from the National Taxpayers Union Foundation. The average refund reached $3,521, up 11% from a year earlier, and total refunds paid out topped $221 billion, up 13%. Two of the law's new deductions — for overtime pay and for tipped income — are being claimed at rates that diverge sharply from initial government projections, and the increased cap on state and local tax deductions is delivering an outsized share of the law's benefit to high earners.
What changed
The 2025 tax law created new, temporary deductions for overtime pay and tip income, alongside raising the SALT deduction cap to $40,000 from $10,000. With a full filing season of data now available, the IRS reports that about 20 million taxpayers claimed the overtime deduction, roughly double what forecasters had projected, while just over 4.6 million claimed the tip deduction, well short of the more than 10 million originally estimated. The IRS also says more than 80% of refunds have gone out in under 21 days despite a smaller agency workforce.
Who is affected
The overtime and tip deductions were pitched as broad-based relief for hourly workers, but the uneven takeup, heavy overtime use, light tip use, suggests overtime pay is more common across the wage-earning population than concentrated tip income is. For After TAX's readership, the more consequential figure is the SALT cap increase. The Tax Foundation estimates that roughly a quarter of the entire law's tax-cut value flows from the SALT cap alone, and that benefit is concentrated among itemizers in high-tax states with state and local tax bills well above the old $10,000 ceiling, a group skewed toward higher incomes. The overtime and tip deductions, by contrast, are capped at relatively modest dollar amounts per taxpayer and phase out at higher incomes, so they matter less for After TAX's readers even though they generated most of the law's initial headlines.
The after-tax math
Example: a married couple in a high-tax state paying $35,000 in combined state income and property taxes, in the 32% federal bracket.
| Scenario | SALT deduction allowed | Approximate federal tax savings vs. old $10,000 cap |
|---|---|---|
| 2025 and earlier (cap at $10,000) | $10,000 | — |
| 2026 (cap at $40,000) | $35,000 | ~$8,000 |
That $8,000 swing, from being able to deduct an additional $25,000 in state and local taxes at a 32% marginal rate, illustrates why the SALT change alone can be worth more to a high-earning household than several of the law's more publicized provisions combined, even though it received comparatively less attention when the bill passed. The math scales further for households paying even more in state and local taxes, up to the full $40,000 ceiling, before any income-based phase-down applies.
Moves to discuss with your advisor
- Recalculating whether itemizing now beats the standard deduction, given the much higher SALT ceiling.
- For households near the SALT cap's income-based phase-down, confirming exactly how much of the $40,000 cap is actually available this year.
- Business owners and hourly-wage households should confirm they are capturing the overtime deduction correctly, since the claim rate suggests broad awareness, but errors in computing the deduction are still common in a law's first year.
What to watch
The SALT cap increase is scheduled to phase down for some higher-income filers and is not permanent in its current form, so households benefiting most from the higher ceiling should watch for any legislative changes before assuming the same deduction will be available in future years. IRS staffing, reduced by budget cuts even as filing volume held steady, remains a wildcard for how smoothly extended and amended returns are processed later in the year. Because this is the deduction's first year, taxpayers who filed early without full guidance on edge cases, such as how bonuses interact with the overtime definition, may find they need to file an amended return once clearer instructions circulate.
Sources
- First reported Four Lessons from Tax Filing Season 2026 — National Taxpayers Union Foundation
- Tax filing season progressing smoothly with timely refund processing and a high use of electronic filing (IR-2026-43) — IRS
- Average tax refund is 11.2% higher, latest IRS filing data shows — CNBC
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
