How New Tax Laws Might Help You Keep More Money In Your Paycheck This Year
New tax rules taking effect for 2025 may mean many workers will owe less when they file next year.
Because of this, some people may want to adjust the amount they have withheld from their final paychecks of the year.
The “One Big, Beautiful Bill” (OBBB) introduced several new tax breaks and expanded others, which will likely lower 2025 tax bills or increase refunds for many taxpayers.
Normally, reducing your paycheck withholdings means you pay less tax throughout the year—resulting in a higher bill or smaller refund at filing time. But with the OBBB lowering taxes for many households, some workers may want to keep more of their pay now rather than wait for a larger refund.
“People who prefer smaller withholdings and bigger paychecks may want to update their W-4s before year-end,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
A Complication: IRS Withholding Tables Aren’t Updated Yet
The IRS has not yet updated the 2025 withholding tables to reflect the OBBB changes—changes that apply retroactively to the start of this year. That makes it harder for taxpayers to know the exact amount they should withhold.
Should I Change My Withholdings?
In general, the IRS advises taxpayers who will benefit from deductions or tax credits to reduce their withholdings. Since many provisions in the OBBB will lower taxes for 2025, you may want to decrease how much tax is withheld from your paycheck and keep more of your earnings now.
You may want to adjust your withholding if you expect to use any of the following OBBB changes:
- Higher standard deduction, increasing the amount you can subtract from taxable income if you don’t itemize.
- Child tax credit increase, boosting the maximum credit by $200 to $2,200 per eligible child.
- Higher SALT deduction for 2025, benefiting higher-income taxpayers or those in high-tax states.
Three new “no tax” provisions allowing taxpayers to deduct more:
- No tax on tips
- No tax on overtime
- No tax on car loan interest
An additional $6,000 deduction for older Americans on their 2025 taxes.
How to Update Your Withholding
The IRS’s Tax Withholding Estimator—normally the easiest way to figure out how much to withhold—has not yet been fully updated for all OBBB changes. However, it does reflect the increased standard deduction and the expanded child tax credit.
If you expect your taxes to decrease because of other new OBBB provisions, the IRS suggests either:
- consulting a tax professional, or
- manually completing a deductions worksheet.
To do this, use your estimated 2025 income and deductions. The result on Line 10 of the worksheet can be entered in Step 4(b) of your W-4. You can usually update your W-4 electronically through your employer, or you can submit a new form directly.
Source: Investopedia
