Tax Refunds on the Rise in 2026
Bank of America has reported that taxpayers are seeing larger refunds from the government this tax season, which could be a positive sign for the stock market. Since the tax season kicked off on January 26th, the average refund for filers through February 13th reached $2,476. That’s a notable increase of 14.2% from the previous year, based on data from the Internal Revenue Service. Analysts in the bank anticipate that refunds will continue to grow compared to prior years. “As the season progresses and with modifications to the One Big Beautiful Bill Act, we believe the gap in refunds compared to last year will widen even more,” stated analyst Lorraine Hutchinson in a report on Wednesday.
Bank of America highlighted that elements within the “Big and Beautiful Bill” might provide an average stimulus check of around $1,000 per household during tax time. Important changes include higher limits on state and local tax deductions, along with a new deduction for overtime work. The bank pointed out that these measures accounted for nearly half of the stimulus package, leading to increased tax refunds and lower tax payments.
No matter whether individuals choose to spend or save, some stocks could see positive effects. Hutchinson mentioned, “Last year, clothing retailers notably benefited from tax refund spending among low-income households. We think this trend suggests that retailers catering to low- and moderate-income consumers will see the most significant growth in 2026.” She specifically recommended Ross Stores as a buying opportunity, citing its potential for upside. The stock, which recently reached a 52-week high, has risen almost 12% since the start of the year with a current dividend yield of 0.8%. Although consensus price targets suggest that Ross stock might be nearing a plateau, with a predicted 1% drop from current levels, 13 out of 19 analysts still classify it as a “buy” or “strong buy.”
Hutchinson expressed, “We believe Ross merits a premium compared to specialty retailers due to its impressive profit generation, consistent growth amid economic changes, prospects for new store openings, and a history of returning excess cash to shareholders through buybacks and dividends.” Burlington Stores also caught her attention, receiving a Buy rating, with the stock already up over 8% this year and a nearly 10% upside predicted.
Regarding spending habits, Bank of America analyst Mihir Bhatia noted that customers feeling financially secure may be more inclined to use their refunds for larger purchases or to settle outstanding debts. A survey revealed that over a third of participants plan to use their tax refunds to pay off debts, while another 13% intend to save the funds. This trend could benefit Synchrony Financial, which holds a buy rating. Although the stock has decreased nearly 13% this year, Wall Street remains optimistic, forecasting a 25% upside from current levels according to consensus price targets. Currently, 17 out of 23 analysts rate it as a buy or strong buy, with a dividend yield of about 1.7%.
“The potential risk here is that consumer balance sheets and credit metrics remain robust,” Bhatia remarked. He expects Bread Financial, also rated a buy, to experience similar benefits. The stock’s growth rate for the year is just shy of 2%, coupled with a dividend yield of 1.2%. While most analysts surveyed primarily classify it as a holding, the consensus price target suggests an upside of 10% or more.
