Average tax refunds are 11.1% greater than last year, according to the IRS’ latest filing season statistics. Treasury Secretary Scott Bessent has credited the One Big Beautiful Bill Act — and the new, temporary overtime and tips deductions.
As of March 27, IRS filing season statistics show the agency had issued nearly 63 million refunds, with a cumulative total of $221.7 billion refunded. The cumulative refund amount was up 13.6% over 2025, while the average refund amount was up 11.1% over last year. On average, taxpayers are receiving $3,521 back this year.
The IRS has also made headway on its digital initiatives, according to the statistics. The number of refunds issued via direct deposit was up by 7.3% over last year, while irs.gov and other web usage was up by 57%.
Part of the increase can be attributed to the OBBB’s new deductions for qualified tips and overtime, available through the 2028 tax year, according to Bessent.
Bessent shared in recent remarks that “more than 4.6 million taxpayers have claimed the ‘No Tax on Tips’ deduction.” But the “big winner,” said Bessent, is the overtime deduction. “More than 25% of tax returns have people claiming a benefit from ‘No Tax on Overtime,'” he said at a Long Island Business Roundtable. He added that “nearly 20 million have benefited” from the overtime deduction.
Overtime and Tips Deduction Basics
New IRC §225 allows an individual to deduct “qualified overtime compensation,” defined as the Fair Labor Standards Act‑required overtime premium that is in excess of the employee’s regular rate (the “half” in time‑and‑a‑half). Base wages or extra overtime paid only under state law or a collective bargaining agreement are not eligible. The deduction is capped at $12,500 per year ($25,000 for joint filers).
IRC §224 allows employees and self‑employed tip earners a deduction equal to “qualified tips” received and reported during the year. Qualified tips include voluntary cash or charged tips in occupations that customarily and regularly received tips on or before December 31, 2024. Mandatory service charges and tips from specified service trades or businesses are not eligible. The deduction is capped at $25,000 per year.
Married taxpayers must file jointly to claim the deductions. Taxpayers also must provide a valid Social Security number. Both deductions phase out for those with modified adjusted gross income over $150,000 ($300,000 for joint filers).
In addition, both deductions are available only for the 2025–2028 tax years.
Deduction Complexities
“So ‘No Tax on Tips,’ ‘No Tax on Overtime,’ fits on a bumper sticker. But, you know, do people understand?” said the Bipartisan Policy Center’s Andrew Lautz. Particularly when it comes to the overtime deduction, determining income eligibility is “complex,” write Lautz and his colleague, Aaron Till.
While next year, workers will be able to rely on their employers’ calculations of qualified overtime, this filing season they are largely on their own. That’s because the IRS, in Notice 2025-62, designated 2025 as a transition year and specified that it will not assert penalties if employers fail to separately report qualified overtime compensation on Forms W‑2 and 1099.
“Some employees may believe that all of their overtime pay — not just the ‘half’ portion of ‘time and a half’ — is deductible, resulting in overreporting,” said Lautz and Till. In addition, workers may receive bonus pay that isn’t required under the FLSA, but they may not understand it is ineligible for the deduction. “Workers who don’t realize that their overtime pay is a discretionary bonus or state-mandated policy may follow the IRS directions for self-reporting but incorrectly calculate their deduction-eligible overtime,” Lautz and Till explain.
The actual revenue impacts of the temporary deductions could be greater than estimated, partially owing to taxpayer confusion. Last summer, as the OBBB was enacted, the Joint Committee on Taxation indicated that the overtime deduction would cost $89.6 billion through 2029 — and $32.8 billion in 2026 alone. The JCT estimated the tips deduction would cost $31.1 billion through 2029.
Lautz said he’s “[g]enuinely surprised” by the number of overtime claims so far — and that it could come down to non-FLSA overtime claims or something “missed” in original estimates.
For more on the tips deduction, see Checkpoint’s Federal Tax Coordinator 2d ¶ H-3550. For more on the overtime deduction, see Federal Tax Coordinator 2d ¶ H-3570.
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