KEY TAKEAWAYS
- The “One Big, Beautiful Bill” adds some tax deductions and increases others for the 2025 tax year, which will mean lower tax bills for many Americans.
- Taxpayers who prefer to pay less in taxes throughout the year can use IRS tools to estimate how to adjust their withholdings to account for the tax rule changes.
Some workers may want to adjust the amount they withhold for taxes from their last few paychecks of the year, since new laws will change how much many will owe for 2025.
The “One Big, Beautiful Bill” introduced new tax breaks and updated others to be more generous, resulting in lower 2025 tax bills or higher refunds for certain taxpayers.
When you lower the amount of taxes being withheld on your paychecks, that means you are paying less in taxes throughout the year—resulting in a higher tax bill or lower refund come filing season. With the changes to tax laws from the OBBB, many taxpayers will pay less in taxes when they file next year.
Why This Matters
Changes to the tax law may allow some Americans to increase their take-home pay for the rest of 2025. That in turn could boost some consumers’ spending power.
Anyone who prefers to pay less in taxes throughout the year, instead of getting a bigger refund, may want to adjust their paychecks’ withholdings now, wrote Nancy Vanden Houten, lead U.S. economist at Oxford Economics, in a report.
However, the IRS has not updated the 2025 withholding tables to reflect the tax changes made by the OBBB in July, which are retroactive to the start of this year. That makes it challenging for taxpayers to determine exactly how much they should withhold.
Should I Change My Withholdings?
The IRS generally recommends that those who are eligible for income tax credits and deductions decrease their withholdings.
Since the OBBB is expected to lower the tax bill for many, you may want to decrease the amount of taxes being withheld from your paycheck and keep more of your pay through the end of the year. If you expect to take advantage of any of these new or expanded tax changes from the OBBB, you should look at decreasing your withholding:
- Increased standard deduction, which is the fixed amount taxpayers can subtract from their taxable income if they do not itemize their taxes.
- An increase in the maximum child tax credit by $200 to a total of $2,200 for each eligible child.
- For taxpayers with higher incomes, or those in high-tax states, the state and local tax deduction also increased for 2025. The SALT deduction allows taxpayers to subtract some or all of the state and local taxes they pay from their federal taxable income.
- Three new ‘no tax’ laws were also implemented that will allow some taxpayers to increase how much they can deduct from their taxes. This includes ‘no tax on tips,’ ‘no tax on overtime,’ and ‘no tax on car loan interest.’
- Older Americans will also be able to deduct an extra $6,000 from their 2025 taxes.
How Can I Update My Withholding?
The easiest tool to estimate how much you should withhold from every paycheck, the ‘Tax Withholding Estimator,’ is not yet updated to account for all tax changes from the OBBB. However, if you are only expecting to take advantage of the increased standard deduction and child tax credit from the OBBB, the IRS’s estimator does account for these changes.
For those who expect to have lower taxes due to the other new tax breaks, the IRS recommends that taxpayers consult a tax professional or manually complete a “deductions worksheet.”
Taxpayers can complete the deduction worksheet using their estimated 2025 income and deductions. The result will be on Line 10 of the form, which you can then enter into Step 4(b) of your W-4. You can often update your withholdings digitally with your employer, or you can send the company your new W-4 to update your employer on how much federal tax to withhold from your pay.