Maximizing Your 2025 Tax Refund: New Deductions You Need to Know
2026 is shaping up to be a landmark year for income tax refunds. Changes in the One Big Beautiful Bill Act (OBBBA) passed last summer could help you see a significant boost in your federal return.
In fact, some analysts predict an average refund increase of $675, with many middle-income households seeing a jump of $1,000 or more. This is largely because the IRS withholding tables weren't adjusted mid-year to account for these new breaks, meaning you may have overpaid throughout 2025.
New Opportunities to Lower Your Taxable Income
The OBBBA introduced several "above-the-line" deductions, meaning many of these can be claimed in addition to the standard deduction. Here is a breakdown of the new incentives that might apply to you and your family:
Overtime Pay Relief: If you put in extra hours last year, you can now deduct the "half" portion of your time-and-a-half pay (up to $12,500). This applies to those with a modified adjusted gross income (MAGI) under $150,000.
Support for Homeowners (SALT): For those who itemize, the cap on State and Local Tax (SALT) deductions has been raised from $10,000 to $40,000. This is a major win for Pennsylvania homeowners in higher-tax municipalities.
American-Made Auto Interest: Did you purchase a new American-made vehicle in 2025? You may be eligible to deduct up to $10,000 in auto loan interest, provided your MAGI is under $100,000.
Gratuity Deductions: If you or a family member works in a qualifying service occupation, up to $25,000 in tip income may now be deductible (subject to income limits).
Senior Tax Benefit: Taxpayers aged 65 or older can claim an additional $6,000 deduction, provided their MAGI is below $75,000.
Put Your Windfall to Work
With the average refund potentially climbing toward the $3,800 mark, it’s important to have a strategy before that deposit hits your account. While it’s tempting to spend a windfall on a one-time purchase, consider these ways to strengthen your financial future right here at the credit union:
1. Eliminate Higher-Interest Debt: Use your refund to wipe out credit card balances or personal loans.
2. Grow Your Emergency Fund: Move your refund into a Savings Account or a Share Certificate to ensure you're prepared for the unexpected.
3. Invest in Your Retirement: Consider contributing to an IRA to give your future self a head start.
Note: This blog is for informational purposes only. Tax laws are complex and individual situations vary. We highly recommend consulting with a qualified tax professional to see which of these new deductions may apply to your specific filing status.