When the One Big Beautiful Bill Act became law, millions of people likely rejoiced that their future federal income tax bills would be lower. But some taxpayers might not realize how soon that future will arrive.
Many of the tax cuts in the legislation are retroactive, meaning they apply to the 2025 tax year — the one for which returns are due by April 2026. As a result, the tax refund you receive this coming spring might be larger than you anticipate.
If you expect to owe taxes instead of getting a refund, your bill might be a bit smaller than you expect.
Who stands to benefit from these lower taxes? As it turns out, just about everybody, including the following groups.
1. Seniors
Applicable tax break: The new tax deduction for seniors
Effective date: The 2025 tax year through the 2028 tax year
Many people aged 65 or older are now eligible to claim a new senior tax deduction worth up to $6,000 per person per year.
To nab the full deduction, you must have a modified adjusted gross income (MAGI) of no more than $75,000 if you are single or $150,000 if you file a joint return.
If your MAGI is higher, don’t fret: You might still qualify for the deduction, although its value will be reduced. The deduction fully phases out at $175,000 (single) or $250,000 (married filing jointly), meaning people with MAGIs above those amounts are entirely ineligible for the deduction.
For the purpose of this tax break, the MAGI equals the adjusted gross income (AGI) for folks living and earning income in a U.S. state or Washington, D.C. You can find your latest AGI on line 11 of your 2024 tax return.
2. Parents
Applicable tax break: The improved child tax credit
Effective date: Starting with the 2025 tax year
The maximum value of the child tax credit has been bumped from $2,000 to $2,200. Additionally, going forward, the credit will be adjusted for inflation, which was not previously the case.
The refundable portion of the child tax credit is also being adjusted for inflation and has been set at $1,700 as of 2025.
Just remember that parents with children are not automatically qualified to get this credit. Instead, age cutoffs and other requirements apply. The IRS breaks down who qualifies for the child tax credit at the agency’s website.
3. Workers who earn tips
Applicable tax break: The new tax deduction for tips
Effective date: The 2025 tax year through the 2028 tax year
Servers, stylists and many others who earn tips are now eligible to deduct up to $25,000 per year in tip earnings. If you are self-employed, the maximum value of the deduction cannot exceed your net income.
Before you claim this deduction, it’s important to understand the rules. Recently, the IRS offered some guidance on the change.
Unfortunately, a lot of confusion remains about who can take this deduction and who cannot. As Thomas Gorczynski, an IRS enrolled agent based in Tempe, Arizona, recently told CNBC:
“We’re going to have this hodgepodge, weird year of rules that’s going to make reporting very difficult for employees.”
4. Workers who earn overtime pay
Applicable tax break: The new tax deduction for overtime pay
Effective date: The 2025 tax year through the 2028 tax year
Workers who put in extra hours and earn overtime pay also are eligible for a new tax break.
The deduction can be applied to up to $12,500 per year for single taxpayers — or $25,000 for married couples filing jointly — in qualified overtime pay.
The IRS notes that workers can only deduct the portion of their overtime pay that exceeds their regular pay rate. Basically, that means you can deduct the “half” portion of “time-and-a-half” compensation.
Other rules also apply. To learn more, check out “Here’s How the New Tax Breaks for Tips and Overtime Work (While They Last).”
5. Car loan holders
Applicable tax break: The new tax deduction for car loan interest
Effective date: The 2025 tax year through the 2028 tax year
There was a time long ago when you could deduct car loan interest on your tax return. That perk disappeared in the 1980s, but it returned with the passage of the One Big Beautiful Bill Act.
For a few years, you can now deduct up to $10,000 in car loan interest on your federal income tax return.
The good news is that this deduction is available to people who claim the standard deduction, not just those who itemize their tax deductions (which is only roughly 10% of taxpayers). But as with many of the new tax breaks, rules and exclusions apply.
You can find out more about this deduction in “The New Tax Deduction for Car Loans Isn’t As Great As It Sounds. Here’s How It Works.”
6. Adoptive parents
Applicable tax break: The improved adoption credit
Effective date: Starting with the 2025 tax year
The federal government offers a tax break for those who adopt a child. This credit helps cover expenses such as adoption fees, court costs and attorney fees.
Previously, this federal tax credit available was nonrefundable, meaning that although it could lower your tax liability to zero, it could not go beyond that bound and actually result in you receiving a refund.
That has now changed, as the One Big Beautiful Bill Act has made the credit partially refundable. The adoption credit is worth up to $17,280 in 2025, with up to $5,120 being refundable.
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