How Trump’s 2025 Tax Law Could Boost Your 2026 Refund: What W‑2 Employees & Business Owners Need to Know

If you’re a W‑2 employee or a business owner, you might see a bigger refund when you file in early 2026. That’s because the new tax law signed by Donald Trump—the One, Big, Beautiful Bill (“OBBB” for short)—passes many changes that can reduce your tax bill.

What’s going on and why this matters

The OBBB was signed into law in July 2025, and many of its rules apply for the 2025 tax year (which you’ll file in 2026). Because some employer withholding tables haven’t yet been updated, many people will have paid too much tax during 2025—and thus may get larger refunds when they file.

For example:

The standard deduction is bumped up, meaning more of your income is tax‑free.
New credits and deductions apply for tipped workers, overtime, seniors, etc.
The cap on state and local tax (SALT) deductions is raised from $10,000 to as high as $40,000 in some cases.

All of this means that if you don’t adjust your payroll withholding (or estimated taxes, if you run a business), you might get a refund bigger than you expected in 2026.

What W‑2 employees should expect

If you’re a regular wage earner, here’s what could change for you:

Higher standard deduction means your taxable income goes down. For 2026 the standard deduction will be $16,100 for single filers and $32,200 for married filing jointly.
Tip income: Servers, bartenders, and other tipped workers may not owe tax on some tip income (subject to limits).
Overtime income: Some extra income from overtime may qualify for new deductions.
Senior deduction: If you’re 65 or older, you may get up to $6,000 extra deduction.
Withholding adjustments: Because your employer may still be using older withholding tables, too much tax may have been taken out each paycheck—meaning a larger refund when you file.

What you should do now:

Check your W‑4 form: Update withholding if you want smaller refunds and more monthly take-home pay.
Ask your employer if they’re using updated withholding tables; adjust if necessary.
Track credits and deductions: Make sure you claim any senior, tip-income, or overtime deductions correctly.
Save your extra refund: Consider using it for emergencies, retirement, or debt repayment.

How business owners and small business owners can adjust

If you own a business, are self‑employed, or pay estimated taxes:

Check estimated tax payments: Adjust for lower taxable income under the new law.
Payroll planning: Update payroll if you have tipped employees or pay overtime.
Review payroll withholding for yourself/employees: Ensure salaries reflect lower tax liability.
Consider timing of income/deductions: Deferring income into 2026 or accelerating deductions may help, with CPA guidance.
Business structure review: Revisit itemizing vs. standard deduction decisions, rental real estate, and SALT caps.

Key changes

Standard deduction is higher—less income is taxed.
Tip income may not be taxed for some workers.
Overtime income may receive special deductions.
Seniors get extra deductions.
High-tax states may benefit from the higher SALT deduction cap (up to ~$40,000).
Employers not using updated withholding tables may cause refunds to be larger in 2026.
Business owners should update calculations for estimated taxes.

Final thoughts

The 2025 tax law (OBBB) delivers meaningful changes that can raise your refund or lower your tax bill when you file in early 2026. It especially helps wage earners, seniors, tipped workers, and those in high-tax states.

To get the full benefit, review withholding, update estimated payments, keep good records, and consult your CPA or tax advisor. Business owners or payroll managers should take action now—small changes before year-end can yield a stronger refund and better cash flow.