Potential Tax Refund Changes in 2026
According to a recent economist’s report, the tax and spending bill signed by President Donald Trump in July could lead to significant tax refunds or lower tax bills for Americans, particularly for wealthier individuals, in 2026.
Nancy Vanden Houten, chief economist at the University of Oxford, suggests that up to $50 billion in total tax savings might be available to taxpayers. This is largely because the IRS won’t retroactively update its withholding schedules to incorporate these new policies until early 2025.
He indicated that for taxpayers to truly capitalize on these retroactive changes—like added deductions for senior citizens, exemptions on tips and overtime, along with an expanded child tax credit—they will need to lower their tax liabilities through adjustments in withholding or estimated tax payments. However, employers are still employing higher tax rates for calculating withholding, meaning the adjustments have yet to reflect the recent law changes. The IRS typically revises these tables annually to factor in inflation and any tax law changes.
With rising costs affecting many Americans, from groceries to insurance, these potential tax savings could bring some relief. Still, Vanden Houten cautions that the bulk of the tax benefits will primarily favor the wealthy.
“The advantages of the new retroactive tax cuts largely benefit taxpayers within the top income quintile,” he states. While all income brackets may receive some form of average tax cut, higher-income households are set to gain the most according to analysis from a nonpartisan think tank.
Implications of $50 Billion in Tax Savings
If taxpayers do indeed see an additional $50 billion in refunds, this would represent roughly a 17% increase from last year’s total of about $275 billion. This is especially meaningful considering the refund increase from 2024 to 2025 was merely 2%.
The average refund for 2025 is expected to hover around $2,939—which means a 17% jump equates to nearly $500. However, it’s essential to understand that not all of this $50 billion will translate into refunds.
Vanden Houten mentioned that some taxpayers might opt to reduce their tax payments leading up to the April deadline instead. Furthermore, while some individuals could choose to lower their withholdings, there’s no substantial evidence that this is happening widely.
Why Tax Cuts Favor Wealthy Americans
Experts highlight that the increase in state and local tax (SALT) deductions will likely provide the most significant advantage to affluent taxpayers. Trump’s plan temporarily raises the SALT deduction cap to $40,000 for certain households. Additionally, specific business owners can leverage state loopholes to bypass the SALT cap altogether, according to the Tax Policy Center. Wealthy individuals often surpass this limit with their itemized state and local taxes.
Economic Impact of Bigger Tax Cuts
Historically, many people tend to spend at least part of their tax refunds. A survey revealed that, back in 2005, a significant portion of taxpayers had either already spent or were planning to spend their refunds soon.
Vanden Houten anticipates that the economic effects are likely to be visible in the first half of 2026, but adds that there’s little indication the delay in tax adjustments for 2025 is adversely affecting consumer spending at the moment. Thus, any impact on the economy may be relatively minor.
He noted that consumers might already be spending money in the hope of receiving larger refunds or lower tax bills next year. Furthermore, it appears that high-income households have benefitted more from the retroactive tax cuts, which may reflect in fewer refunds but lower tax expenses. Vanden Houten speculates that higher-income households will likely spend about 20% of their tax savings, whereas other Americans may spend between 25% to 40% of their increased refunds.
