A bartender in Miami pulling double shifts. A nurse in Houston clocking 50-hour weeks. A delivery driver in Phoenix still paying off a used sedan. For millions of workers like these, tax season brought a noticeably fatter refund check this spring, and a new batch of federal deductions is a big reason why.
Through March 20, 2026, the IRS reports that the average tax refund reached $3,571, up from $3,221 at the same point last year. That gap of roughly $350 represents a jump of more than 10 percent. (Because the IRS publishes weekly snapshots rather than a single official year-over-year figure, the precise difference fluctuates slightly depending on the comparison date; the headline figure of $340 reflects a common rounding across reporting periods.) Either way, the increase is the largest single-year gain in average refunds since the early days of the Tax Cuts and Jobs Act in 2018.
Three New Deductions That Went Live This Filing Season
The story behind the bigger checks traces to the One, Big, Beautiful Bill (Public Law 119-94), signed in May 2025. That legislation created four above-the-line deductions for tax years 2025 through 2028. Three of them target working Americans directly:
- Tips (up to $25,000): Workers who receive qualified tips, including restaurant servers, bartenders, rideshare drivers, and salon professionals, can deduct up to $25,000 of that income. The deduction phases out at higher income levels based on modified adjusted gross income.
- Overtime pay: Employees who earn overtime compensation under the Fair Labor Standards Act can deduct the overtime premium, meaning the extra half-time rate paid for hours beyond 40 in a workweek. The deduction covers the “time-and-a-half” portion, not the base pay for those hours.
- Auto loan interest: Filers carrying a loan on a personal vehicle can deduct the interest paid during the tax year, subject to its own caps and income phaseouts. The vehicle must be for personal use; business vehicles fall under separate rules.
A fourth provision offers an additional deduction for filers age 65 and older. The IRS has confirmed it appears on Schedule 1-A, the new form built for these deductions, but the agency has published less detailed public guidance on the seniors provision’s eligibility rules and income limits than it has for the other three. As of late May 2026, the clearest information is in the Schedule 1-A instructions themselves.
Because all four are above-the-line deductions, filers can claim them whether they itemize or take the standard deduction. That distinction matters: it means a single mother taking the standard deduction gets the same access as a high-income filer with an itemized return.
How the Overtime Deduction Actually Works
Of the three worker-focused provisions, the overtime deduction has generated the most confusion, and for good reason. It does not simply reward anyone who works long hours.
The deduction is pegged to the FLSA definition of overtime premium pay. In plain terms, that means the extra 50 percent bump (the “half” in time-and-a-half) that non-exempt employees earn for hours beyond 40 in a workweek. If you earn $20 an hour and work 45 hours, the deductible portion is the $10 premium on each of those five overtime hours, not the full $30-per-hour overtime rate.
The IRS issued guidance in Notice 2025-69 spelling out calculation methods. Workers whose W-2 forms do not break out overtime separately can use pay stubs or personal logs to substantiate their claims, according to Treasury guidance. Major tax software providers updated their products before the season opened to walk filers through the new provisions.
There are risks on both sides. Workers or employers who misclassify bonuses, hazard pay, or shift differentials as overtime could see those claims flagged during processing. On the flip side, some workers who genuinely earned FLSA overtime may not realize a portion of their wages now qualifies, potentially leaving hundreds of dollars on the table.
What the IRS Data Reveals, and What It Does Not
The agency’s early-season report describes a smooth filing period with high e-filing rates and timely refund processing. The IRS says it has updated its systems to accept Schedule 1-A electronically and flag common errors, such as claiming tips that were never reported to an employer or deducting interest on a vehicle used primarily for business.
But significant gaps remain in the public data. As of late May 2026, the IRS has not disclosed:
- How many filers have actually attached Schedule 1-A to their returns.
- How much of the average refund increase is driven by the new deductions versus other factors, such as wage growth, changes in withholding tables, or shifts in who has filed so far this season.
- Any demographic or geographic breakdowns. It is reasonable to wonder whether tip-heavy states like Nevada and Florida are seeing outsized benefits, but there is no public data to confirm that yet.
- Where filers fall along the income phaseout curves, which would reveal whether the deductions are primarily reaching middle-income workers or skewing toward higher earners.
Without those details, no one can say with precision how much of the $350 bump is attributable to the new write-offs alone. What analysts can say is that the deductions are the most significant new variable in the 2025 tax code for wage earners, and the timing of the refund increase lines up. The IRS typically releases more granular filing-season data in the summer and fall, which should sharpen the picture considerably.
What to Do If You Have Not Filed Yet (or Missed a Deduction)
The tax filing deadline for most individuals was April 15, 2026, but millions of filers requested extensions or are still sorting out their returns. If you earned tips, worked overtime, or paid interest on a car loan during 2025, it is worth checking whether Schedule 1-A applies to you. The IRS’s deduction overview page walks through each provision’s requirements and income limits.
A few practical points:
- Gather documentation now. For the overtime deduction, you need pay stubs or records showing FLSA-qualifying overtime hours and premium pay. For auto loan interest, pull your lender’s year-end statement showing total interest paid in 2025.
- Do not confuse business and personal vehicle rules. The new auto loan interest deduction covers personal-use vehicles only. If you use your car primarily for business, different deductions (like actual expenses or the standard mileage rate) apply, and you cannot claim both.
- Already filed without claiming? You can file an amended return using Form 1040-X to add Schedule 1-A deductions you missed. The IRS generally allows amended returns within three years of the original filing deadline.
- Watch the income phaseouts. Each deduction has its own modified AGI threshold. If your household income is well above the national median, run the numbers before assuming you qualify for the full amount.
A Four-Year Window That Could Close or Expand
These deductions are not permanent. The One, Big, Beautiful Bill set them to expire after tax year 2028, giving workers a four-year window to benefit. Whether Congress extends them, expands them, or lets them lapse will depend on budget dynamics, deficit projections, and political priorities that are far from settled.
There is precedent for both outcomes. The TCJA’s individual tax cuts, originally set to expire in 2025, were extended as part of the same legislative package that created these new deductions. On the other hand, Congress has allowed plenty of temporary tax breaks to quietly sunset without renewal.
For now, the early numbers point in one direction: refunds are up, the new deductions appear to be reaching the workers they were designed for, and the IRS is processing claims without major disruption. The workers who stand to gain the most are those who act on the provisions while they last, starting with the 2025 returns still being filed and amended this spring.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
