Why is my 2025 tax refund smaller than expected even with the new OBBBA tax cuts?

Several factors can explain why your refund is smaller despite the OBBBA tax cuts, and the most common culprit is updated withholding tables.

1. Your employer adjusted withholding mid-year:

After the OBBBA passed in July 2025, the IRS updated withholding tables. Employers were required to implement these changes by October 2025. This means for the last few months of 2025, less tax was withheld from each paycheck. The tax cut showed up in your paychecks rather than as a bigger refund. You effectively received the benefit in real time.

2. The new deductions are below-the-line:

The four Schedule 1-A deductions (tips, overtime, car loan interest, senior deduction) reduce your taxable income but don't affect AGI. This means they don't change your withholding calculation during the year. If you qualify for these deductions, they should actually increase your refund compared to what was withheld. If your refund is still smaller, the withholding adjustment likely offset the benefit.

3. You may not qualify for the headline deductions:

The "no tax on tips" and "no tax on overtime" deductions only apply to specific workers:

• Tips: Only W-2 employees in traditionally tipped occupations earning under $160,000 MAGI
• Overtime: Only non-exempt hourly employees under FLSA, with a $12,500 cap (single) or $25,000 (joint)
• Car loan interest: Only loans on vehicles under $100,000 MSRP, capped at $10,000/year
• Senior deduction: Must be 65+ by end of tax year

If none of these apply to you, the main changes are the higher standard deduction and increased SALT cap, which may have already been reflected in lower withholding.

4. Income changes matter more than tax law:

A raise, bonus, investment gains, or side income can easily offset any tax cut. If your income increased by even 5-10%, the additional tax on that income might exceed the OBBBA savings.

5. The child tax credit increase was modest:

The CTC went from $2,000 to $2,200 per child. That's only $200 more per kid, which adds $200 to your refund if you were already getting the full credit.

What to do:

• Compare Line 24 (total tax) on your 2025 return vs. 2024 return. If total tax went down, the tax cut worked. Your smaller refund is because less was withheld, not because you paid more.
• Use the IRS Tax Withholding Estimator (irs.gov/W4app) to adjust your W-4 for 2026 if you want a larger refund next year
• Check whether you missed any Schedule 1-A deductions you qualify for