Why some Californians could get bigger income tax refunds this year

For folks who have been putting off doing their income taxes, here’s an incentive: Recent changes in federal tax law could mean bigger refunds for many taxpayers, a Vallejo tax preparer said.

New tax law provisions in the so-called “One Big Beautiful Bill” of 2025 become effective this year, impacting federal taxes, credits and deductions. (The bill did not change California state taxes.)

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“The big four changes affect taxes on tips, taxes on overtime, a new senior deduction and a higher cap on deductible state and local taxes,” said Jill Brown, a tax preparer at Keegan’s Tax & Financial Services who has been doing tax returns in Vallejo for 31 years.

One important thing to remember about these new developments: they don’t apply to everyone, and different people may be affected differently, said Brown.  Many of the provisions involve income limits, for example.

Taxes on tips

“Workers who reported tips on their 2025 W-2 will be able to deduct up to $25,000 in qualified tips,” Brown said. The IRS defines “qualified tips” are voluntary cash or charged tips received from customers or through tip sharing. Examples of people who might qualify for the deduction include wait staff, bartenders, salon workers, personal trainers and gig economy workers.

The tip deduction phases out for people who make more than $150,000 ($300,000 for married couples). Also, it is temporary, ending Dec. 31, 2028. A Social Security number is needed to claim this deduction.

More information is available on the Internal Revenue Service website.

Taxes on overtime

There’s a new tax deduction of up to $12,500 ($25,000 for couples) for qualified overtime wages. The deduction phases out for those making more than $150,000 a year – and, like the tip deduction, it is temporary, ending in 2028.

As tends to be the case with tax provisions, it’s complicated, and there are restrictions that make this tax cut available mostly to hourly workers, not those who are salaried.

Senior deduction

“Another big thing: People who are 65 years old as of Dec.31 get an additional $6,000 deduction,” said Brown. “This is totally new.”

The deduction decreases for those who earn more than $75,000 a year ($150,000 for couples). This tax break is available for those who take the standard deduction as well as those who itemize their returns.

Brown noted, “If you are filing separately, you don’t get it.” The deduction ends in 2028.

State and local taxes

“For people who itemize, they raised the cap on the taxes you can deduct from $10,000 to $40,000,” Brown said.

This includes property taxes, the tax preparer said.

“Here in California, if you have a big house, for example, I’ve seen property taxes as high as $18,000,” Brown said – so this change could be especially beneficial to California homeowners as well as those in states with high home values.

“If you make more than $500,000 annually, this starts to phase out,” she said.

This provision is set to go back to $10,000 starting in 2030.

Timing

This is a good time to get to work on income taxes. In California, the deadline to file both state and federal income tax returns for the 2025 tax year is Wednesday, April 15.

Taxpayers who need more time can request a filing extension until Oct. 15 — but any taxes owed must still be paid by the April deadline to avoid penalties and interest.

Those who file electronically and choose direct deposit can usually expect their refund within about 21 days, as long as the return is complete and error-free, according to the IRS.

Refunds for federal taxes can take longer for those who file an amended return or submit paperwork by mail. In those cases, processing can take four weeks or longer, the IRS said. California taxpayers can track a federal refund using the IRS tool “Where’s My Refund?” at https://www.irs.gov/wheres-my-refund.