Report: Trump tax overhaul hands biggest refunds to blue states

By SADIE WHITELOCKS, US SENIOR REPORTER

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Democratic-leaning regions that did not vote for President Trump are among those seeing larger refunds and lower tax bills under his new tax rules. The One Big Beautiful Bill Act, signed last July introduced major changes to the tax system - including a significant overhaul of the State and Local Tax (SALT) deduction. Under the previous rules, taxpayers could deduct up to $10,000 in combined state and local taxes. The new law lifts that cap to $40,000, allowing many households to write off far more of their property and income taxes. It means homeowners in high-tax states - many of which lean Democratic - can now deduct far more of their property and state income taxes. It drastically cuts their tax bills and, in many cases, boost refunds.

Democratic-leaning regions that did not vote for President Trump are among those seeing larger refunds and lower tax bills under his new tax rules. The One Big Beautiful Bill Act, signed last July introduced major changes to the tax system - including a significant overhaul of the State and Local Tax (SALT) deduction. Under the previous rules, taxpayers could deduct up to $10,000 in combined state and local taxes. The new law lifts that cap to $40,000, allowing many households to write off far more of their property and income taxes. It means homeowners in high-tax states - many of which lean Democratic - can now deduct far more of their property and state income taxes. It drastically cuts their tax bills and, in many cases, boost refunds.

High-Tax States See Biggest Gains in Tax Relief 

Taxpayers in California , Connecticut , Maryland and New York stand to benefit the most, according to the Bipartisan Policy Center, as these states have most residents claiming the deduction. By contrast, residents in low-tax states such as Florida and Texas , which have no state income tax , are seeing much smaller increases. Separate analysis by Navy Federal Credit Union, supports this trend. In California, Virginia and Maryland, average refunds are up 21 percent, 13 percent and 12 percent respectively compared with 2025, versus an 11 percent national average among the credit union's members.

Taxpayers in California , Connecticut , Maryland and New York stand to benefit the most, according to the Bipartisan Policy Center, as these states have most residents claiming the deduction. By contrast, residents in low-tax states such as Florida and Texas , which have no state income tax , are seeing much smaller increases. Separate analysis by Navy Federal Credit Union, supports this trend. In California, Virginia and Maryland, average refunds are up 21 percent, 13 percent and 12 percent respectively compared with 2025, versus an 11 percent national average among the credit union's members.

Low-Tax States Lag as SALT Benefits Favor Others 

Refunds in states like Florida and Texas are up just 6 percent and 5 percent, respectively. Doris Christelis, a 62-year-old retiree in Sudbury, Massachusetts, who describes herself as 'blue from a blue state', is one taxpayer benefiting from the higher SALT cap. She told The Wall Street Journal that she can now deduct nearly $24,000 in property taxes that she and her husband pay. 'I felt like it was a gift for having to put up with Trump,' she said. Under the new rules, for example, a married couple filing jointly with $250,000 of income and a 22 percent marginal tax rate could boost what they can deduct by $15,000, lowering their tax bill by around $3,300.

Refunds in states like Florida and Texas are up just 6 percent and 5 percent, respectively. Doris Christelis, a 62-year-old retiree in Sudbury, Massachusetts, who describes herself as 'blue from a blue state', is one taxpayer benefiting from the higher SALT cap. She told The Wall Street Journal that she can now deduct nearly $24,000 in property taxes that she and her husband pay. 'I felt like it was a gift for having to put up with Trump,' she said. Under the new rules, for example, a married couple filing jointly with $250,000 of income and a 22 percent marginal tax rate could boost what they can deduct by $15,000, lowering their tax bill by around $3,300.

Previously, limits on the State and Local Tax (SALT) deduction meant they could only write off $10,000 of their state income and property taxes, leaving them better off taking the standard deduction instead of itemising. With the higher cap now in place, they can deduct the full amount of those taxes, pushing their total itemised deductions well above the standard threshold and reducing their overall taxable income. The IRS opened the 2026 filing season on January 26, and ongoing data updates suggest refunds for the 2025 tax year are significantly larger than at the same point in 2025.

Previously, limits on the State and Local Tax (SALT) deduction meant they could only write off $10,000 of their state income and property taxes, leaving them better off taking the standard deduction instead of itemising. With the higher cap now in place, they can deduct the full amount of those taxes, pushing their total itemised deductions well above the standard threshold and reducing their overall taxable income. The IRS opened the 2026 filing season on January 26, and ongoing data updates suggest refunds for the 2025 tax year are significantly larger than at the same point in 2025.

As of March 7, the average refund stands at $3,676 - up from $3,324 a year earlier, an increase of 10.6 percent. The IRS is publishing weekly updates. In total, the IRS has already sent out more than $160 billion in refunds for 2025 returns. Much of the anticipated increase in refunds stems from President Donald Trump's 'One Big Beautiful Bill Act' (OBBBA), signed into law in July 2025. The law cut taxes for the 2025 tax year and expanded the standard deduction. It also introduced new deductions for tip income and overtime pay. But the IRS did not adjust the tax amounts taken out of workers' paychecks during 2025 to reflect those changes.

As of March 7, the average refund stands at $3,676 - up from $3,324 a year earlier, an increase of 10.6 percent. The IRS is publishing weekly updates. In total, the IRS has already sent out more than $160 billion in refunds for 2025 returns. Much of the anticipated increase in refunds stems from President Donald Trump's 'One Big Beautiful Bill Act' (OBBBA), signed into law in July 2025. The law cut taxes for the 2025 tax year and expanded the standard deduction. It also introduced new deductions for tip income and overtime pay. But the IRS did not adjust the tax amounts taken out of workers' paychecks during 2025 to reflect those changes.

A tax refund represents money overpaid to the IRS throughout the year. With each paycheck, employers withhold federal income taxes, as well as contributions for Medicare and Social Security, based on earnings and withholding elections. Because the revised tax provisions were not reflected in withholding calculations, many workers may have paid more tax than necessary during 2025 - resulting in larger refunds, or smaller tax bills, when they file in 2026. 'As a result, many taxpayers will pay too much in tax this year and see larger tax refunds or smaller tax bills next year,' Nancy Vanden Houten, lead economist at Oxford Economics, wrote in an October 2025 report.

A tax refund represents money overpaid to the IRS throughout the year. With each paycheck, employers withhold federal income taxes, as well as contributions for Medicare and Social Security, based on earnings and withholding elections. Because the revised tax provisions were not reflected in withholding calculations, many workers may have paid more tax than necessary during 2025 - resulting in larger refunds, or smaller tax bills, when they file in 2026. 'As a result, many taxpayers will pay too much in tax this year and see larger tax refunds or smaller tax bills next year,' Nancy Vanden Houten, lead economist at Oxford Economics, wrote in an October 2025 report.

The IRS has also issued guidance on additional provisions in the OBBBA affecting tax years 2025 through 2028. Qualifying seniors may deduct an additional $6,000 from taxable income, though the benefit phases out for individuals earning more than $75,000. Other measures include exemptions on taxes for tips, overtime pay, and certain car loan interest, potentially reducing taxable income for millions of workers. Some jurisdictions, including Washington, DC, have opted out of selected provisions, meaning residents may not benefit fully from the federal changes.

The IRS has also issued guidance on additional provisions in the OBBBA affecting tax years 2025 through 2028. Qualifying seniors may deduct an additional $6,000 from taxable income, though the benefit phases out for individuals earning more than $75,000. Other measures include exemptions on taxes for tips, overtime pay, and certain car loan interest, potentially reducing taxable income for millions of workers. Some jurisdictions, including Washington, DC, have opted out of selected provisions, meaning residents may not benefit fully from the federal changes.

The IRS has urged taxpayers to exercise care when claiming deductions, warning that common reporting errors - particularly related to overtime and tip income - could trigger audits or penalties. At the same time, the agency indicated that employers will not face penalties in 2025 for separately reporting overtime or tips, provided standard requirements are met. Under the new law, workers with qualified tips may claim deductions from 2025 through 2028. Approximately six million tipped employees are expected to benefit.

The IRS has urged taxpayers to exercise care when claiming deductions, warning that common reporting errors - particularly related to overtime and tip income - could trigger audits or penalties. At the same time, the agency indicated that employers will not face penalties in 2025 for separately reporting overtime or tips, provided standard requirements are met. Under the new law, workers with qualified tips may claim deductions from 2025 through 2028. Approximately six million tipped employees are expected to benefit.

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