Millions of gig and hourly workers filed their 2025 tax returns this spring expecting a windfall. Social media had promised refund bumps of $1,000 or more, thanks to new tax breaks on tips and overtime signed into law last year. Then the actual numbers landed, and for most filers, the refund looked almost identical to 2024’s.
The disconnect was not a glitch or a broken promise. It was a mechanical problem: the IRS never updated the withholding tables that tell employers how much federal tax to pull from each paycheck. The tax break was real, but it was hiding in plain sight.
The core problem: withholding tables stayed frozen
Signed into law on May 19, 2025, the One Big Beautiful Bill Act, commonly called the OBBB, created new above-the-line deductions for qualified tip income and overtime pay. Formally designated H.R. 1 of the 119th Congress, it was the first bill introduced in the House that session. On paper, those provisions lowered taxable income for millions of service-industry and hourly workers starting in tax year 2025.
But the IRS announced it would not revise federal income-tax withholding tables or certain payroll and information-return forms for 2025. Employers kept withholding at pre-OBBB rates all year long. Unless a worker filed an updated W-4, every paycheck looked exactly the same as it would have without the law.
That created a timing mismatch. The deduction existed in the tax code, but it was invisible in workers’ take-home pay. Any benefit would only surface when the taxpayer filed a return and claimed the new deductions. Workers who did claim them saw a larger refund or a smaller balance due. Workers who did not know the deductions existed, or whose employers could not separate the qualifying income, may have missed the benefit entirely.
Why so many workers missed the adjustment window
The IRS did publish guidance on updating W-4 forms to reflect the new deductions during the year. A worker who followed those steps would have seen bigger paychecks in real time, spreading the tax savings across 2025 rather than waiting for a lump sum at filing.
In practice, very few workers appear to have taken that step. As of May 2026, the IRS has not released data on how many taxpayers adjusted their withholding after OBBB took effect. Tax professionals speaking during the 2026 filing season described a steady pattern: most hourly clients had never touched their W-4 since they were hired and had no idea they could change it mid-year to capture the new deduction. That tracks with research showing most American workers rarely, if ever, revisit their withholding.
The problem went deeper than awareness. The standard W-2 form still does not break out overtime pay as a separate line item. The AP reported in April 2026 that tax experts flagged this as a significant barrier: without a clear overtime figure on the W-2, workers and preparers had to piece together the amount from pay stubs or employer records.
The IRS and Treasury acknowledged the difficulty. The agencies granted penalty relief for tax year 2025 on information reporting for tips and overtime, treating the year as a transition period. Administrative guidance published in Internal Revenue Bulletin 2025-50 outlined alternative documentation taxpayers could use when their W-2 did not itemize OBBB-eligible amounts.
Putting a dollar figure on the gap
Claims circulating online that refunds should have jumped by a specific dollar amount aren’t backed by data. The IRS has not published statistics on how the OBBB provisions affected refunds, and as of May 2026, no independent analysis from the Congressional Budget Office or the Joint Committee on Taxation has produced a reliable national average.
The refund swing for any individual taxpayer depends on several variables: total income, filing status, hours of overtime worked, the volume and type of tip income, and whether the worker adjusted withholding during the year.
Take a full-time restaurant server who earned $15,000 in qualified tips over the course of 2025. If that server falls in the 12 percent federal bracket and claims the full deduction, the tax savings come to roughly $1,800 for the year. But if the server never updated their W-4, none of that showed up in paychecks. It all had to be recovered on the return.
A salaried nurse who logged 200 hours of overtime at time-and-a-half faces a different calculation entirely. That worker would also need pay-stub records to document the hours, since the W-2 does not break them out. An IRS notice published in September 2025 formally defined which occupations “customarily and regularly received tips” and what counted as qualified tips under the statute, narrowing the pool of eligible workers further than many filers expected.
Did tax software catch it?
One question that keeps popping up: if you used TurboTax, H&R Block, or another major tax-prep platform, were you prompted to claim the OBBB deductions? The answer varies. Major software providers updated their products for the 2026 filing season to include screens for the new tip and overtime deductions, but the prompts only work if the filer has the right documentation on hand. A worker who could not produce records separating overtime from regular pay may have skipped past it or entered incomplete figures. Workers who used free-file options or filed by hand were even less likely to encounter a prompt.
What affected workers can do right now
If you earned tips or overtime in 2025 and are not sure whether you claimed the OBBB deductions, the first step is to pull your filed return (or ask your preparer for a copy) and look for the above-the-line deduction on Schedule 1. If it’s missing, you can file an amended return using Form 1040-X. The IRS generally allows amended returns within three years of the original filing deadline, which means the window for most 2025 filers stays open until April 15, 2029.
For 2026, workers who expect to earn qualifying tips or overtime shouldn’t wait for the same surprise next spring. The IRS withholding estimator at irs.gov can help calculate the right W-4 adjustment so the tax savings show up in each paycheck rather than as a lump sum at filing.
Will the IRS finally update withholding tables for 2026?
Whether the IRS will bake the OBBB provisions into withholding tables for tax year 2026 is still unclear. The agency has not announced plans to do so as of May 2026. Until it does, the burden falls on workers to account for the tax break themselves, one paycheck at a time. That’s not how most people expect a tax cut to work, and it is the biggest reason the refund bump fell short of what social media promised.
