IRS Won’t Change Withholding In 2025, Trump’s Bill Means Bigger Tax Refunds – Financial Freedom Countdown
The IRS announced this week that withholding tables and W-2 reporting forms will remain unchanged for 2025.
As a result, millions of Americans will continue paying taxes on tips, overtime, and other income throughout the year; but when they file in 2026, they’ll receive those amounts back as larger refunds thanks to President Trump’s One Big Beautiful Bill Act (OBBBA).
Trump’s Law Reshapes Tax Withholding
Signed on the 4th of July, Trump’s bill includes major tax breaks for tipped workers, overtime earners, and seniors.
Because the IRS is delaying withholding adjustments, these groups will temporarily pay more during the year; but ultimately benefit at filing time.
Why Withholding Won’t Change This Year
The IRS explained that keeping current withholding tables and W-2 forms avoids disruptions for businesses, payroll providers, and taxpayers. “These decisions are intended to avoid confusion during tax season and give enough time to implement the changes effectively,” the agency said.
Tip Income Gets a Break
Under the new tax law, tip income will be deductible for tax years 2025 through 2028, whether or not you itemize your deductions.
This deduction applies to qualified tips; cash or credit card tips, earned in jobs the IRS identifies as customarily receiving tips as of December 31, 2024.
The Treasury Department will publish the official list of eligible occupations by October 2, 2025.
The maximum deduction is $25,000 per year.
For self-employed workers, the deduction cannot exceed the net income from the business where the tips were earned.
To claim it, taxpayers must include their Social Security Number on their return and file jointly if married.
The deduction gradually phases out for those with a modified adjusted gross income (MAGI) above $150,000 for single filers and $300,000 for joint filers.
No Tax On Overtime Pay
Unlike tips, overtime pay did not previously have separate reporting lines on Form W-2 because regular wages and overtime were taxed the same.
Under the new law, workers can claim a deduction for qualified overtime pay of $12,500 for singles and $25,000 for married couples filing jointly.
Like the tip deduction, this is a temporary deduction for tax years 2025 through 2028 and applies whether or not you itemize.
For this rule, overtime compensation is defined as the amount above your regular rate of pay; essentially the “half” portion of time-and-a-half pay. Only this extra portion qualifies for the deduction.
While the IRS had previously indicated that overtime pay should be reported on Form W-2, Form 1099, or another statement, the lack of W-2 changes in 2025 means it’s currently unclear how this income will be reported for claiming the deduction.
New Senior Deduction
Under the One Big Beautiful Bill Act (OBBBA), seniors age 65 and older can claim a new, temporary $6,000 deduction starting in 2025, which expires after 2028.
This deduction is available whether you take the standard deduction or itemize your deductions.
It serves as a substitute for Trump’s “no tax on Social Security” promise, as there is no separate provision for Social Security.
The deduction applies to taxpayers who are 65 or older by the last day of the tax year.
It is in addition to the current senior standard deduction and can be claimed by all eligible seniors, regardless of itemizing.
For married couples where both spouses qualify, the deduction doubles to $12,000.
Taxpayers must include their Social Security Number on the return and file jointly if married.
The deduction gradually phases out for those with a modified adjusted gross income (MAGI) above $75,000 for single filers or $150,000 for joint filers.
IRS Prepares Guidance for 2026
New guidance and updated forms will take effect in 2026, allowing taxpayers to reduce withholding in real time.
Until then, refunds are the only way to capture the benefit of Trump’s bill.
Reporting Rules Still Evolving
Some uncertainty remains. Tip and overtime reporting on W-2s is not yet updated, which may require employers to adjust payroll systems.
Accounting professionals noted, “They’re just kicking it to next year, but it might not ever be figured into withholding completely.”
Should You Adjust Your Withholding?
Most taxpayers are advised to wait rather than rushing to update W-4 forms.
Those who qualify for the new deductions but make no changes will still see bigger refunds.
If you try to reduce withholding now, careful calculation is required to avoid penalties.
Bigger Refunds Are Expected
By keeping withholding tables unchanged in 2025, the IRS ensures a smoother transition while setting up larger refunds for millions in 2026.
The IRS announcement dated 7th August 2025 promises new guidance and forms for 2026.
Trump’s One Big Beautiful Bill is delivering on promises to ease the tax burden for working Americans, tipped employees, overtime workers, and seniors.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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