The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has ushered in sweeping tax reforms that promise to significantly boost tax refunds for many Americans starting in 2026. This legislation, which builds on and extends provisions from the 2017 Tax Cuts and Jobs Act (TCJA), introduces changes that reduce tax liabilities and enhance credits, potentially putting more money back in taxpayers’ pockets.
Why Refunds Are Set to Increase
Tax refunds represent the difference between the taxes you pay throughout the year (through withholdings or estimated payments) and your final tax liability after applying credits and deductions. The OBBBA enhances refunds by permanently extending TCJA’s lower tax rates and higher standard deductions, while introducing new and expanded credits and deductions.
These changes reduce what you owe the IRS, and for many, the refundable portions of credits mean direct cash back, even if you owe little or no tax. According to estimates, the OBBBA could increase after-tax incomes by an average of 2.9% in 2026, setting the stage for larger refunds, particularly for families and certain workers.
Key Provisions Driving Bigger Refunds
1. Increased Child Tax Credit (CTC)
The Child Tax Credit, a cornerstone of family tax relief, gets a significant boost under the OBBBA. Starting in 2025, the maximum CTC increases from $2,000 to $2,200 per qualifying child under age 17, with annual inflation adjustments beginning in 2026. The refundable portion, known as the Additional Child Tax Credit (ACTC), is set at $1,700 for 2025 and will also adjust for inflation.
Why It Matters: The CTC directly reduces your tax liability dollar-for-dollar. If your tax bill is reduced to zero, the refundable ACTC ensures you receive up to $1,700 per child as a cash refund. For example, a family with two qualifying children and a $2,000 tax liability could use the $4,400 CTC ($2,200 × 2) to eliminate their tax bill and receive a refund of up to $3,400 ($1,700 × 2). The inflation adjustment ensures the credit keeps pace with rising costs, further enhancing refunds over time. However, low-income families earning less than $2,500 annually may not see the full benefit, as eligibility rules remain unchanged.
2. Enhanced Child and Dependent Care Tax Credit
Starting in 2026, the Child and Dependent Care Tax Credit, which offsets childcare costs for children under 13 or dependent adults, increases from 35% to 50% of eligible expenses, up to $3,000 for one dependent or $6,000 for two or more. This means a maximum credit of $1,500 or $3,000, respectively, for qualifying families. The credit’s income phase-out thresholds are also adjusted to benefit more middle-income households.
Why It Matters: While nonrefundable, this credit significantly reduces tax liability for working parents. For example, a family spending $6,000 on childcare for two children could claim a $3,000 credit, directly lowering their tax bill. Combined with lower tax rates from the TCJA’s permanent extension, this could result in over-withholding, boosting refunds when filing in 2027.
3. Partially Refundable Adoption Credit
The OBBBA makes the Adoption Tax Credit partially refundable, up to $5,000, for 2025 and beyond, with a total credit cap of $17,280 per adoption. Previously nonrefundable, this change allows families whose tax liability is less than the credit amount to receive a cash refund.
Why It Matters: For adoptive families, this credit can now generate a refund even if their tax bill is low. For instance, if a family’s tax liability is $10,000 and they claim a $17,280 adoption credit, they could receive a $5,000 refund after reducing their tax to zero, making adoption more financially accessible.
4. Deduction for Qualified Tips and Overtime Pay
New deductions for 2025–2028 allow employees and self-employed individuals to deduct up to $25,000 in qualified tips and up to $12,500 (or $25,000 for joint filers) in overtime pay, phasing out for incomes above $150,000 ($300,000 for joint filers).
Why It Matters: These deductions lower taxable income, reducing tax liability for service industry workers and those earning overtime. For example, a server earning $20,000 in tips could deduct the full amount, potentially dropping them into a lower tax bracket and increasing their refund if withholdings remain unchanged.
5. Increased Standard Deduction and SALT Cap
The OBBBA makes the TCJA’s higher standard deduction permanent—$15,750 for single filers and $31,500 for joint filers in 2026, with inflation adjustments. The State and Local Tax (SALT) deduction cap rises from $10,000 to $40,000 for 2025–2029, with a 1% annual increase, benefiting residents of high-tax states.
Why It Matters: A higher standard deduction reduces taxable income for non-itemizers, while the increased SALT cap allows itemizers to deduct more state and local taxes. Both changes lower tax liability, potentially leading to larger refunds if withholdings aren’t adjusted.
6. Charitable Deduction for Non-Itemizers
Starting in 2026, non-itemizers can deduct up to $1,000 ($2,000 for joint filers) in charitable contributions, a provision previously expired under the TCJA.
Why It Matters: This deduction reduces taxable income for those who don’t itemize, further lowering tax liability and increasing potential refunds.
Limitations and Considerations
While these provisions promise larger refunds, not all taxpayers will benefit equally. Low-income families may miss out on the full CTC due to its partial refundability and unchanged phase-in rules. Additionally, tightened eligibility requiring Social Security numbers for both children and at least one parent may exclude some mixed-status families. The elimination of green energy credits, like the $7,500 electric vehicle credit after September 30, 2025, could also offset savings for some.