Tax Refunds Poised for Increase Due to Recent Legislation
Next year, some taxpayers could see bigger tax refunds thanks to changes made by President Donald Trump’s recent legislation, often referred to as the “Big and Beautiful Bill.” Experts are predicting this outcome.
The July bill introduced various tax breaks, including an expansion of the basic deduction, a bonus deduction for seniors, and a tax cut on tips, all set to take effect in 2025. These alterations could influence tax returns filed in 2026. However, the IRS has maintained the current withholding rates, meaning many workers are still having the same amounts deducted from their paychecks as before the law was enacted.
“Consequently, a lot of people might end up overpaying their taxes this year, leading to either larger refunds or lower payments next year,” commented Nancy Vanden Houten, chief economist at Oxford Economics, in a report from October.
Investment bank Piper Sandler also chimed in, suggesting that 2026 might be a record year for tax refunds, especially for middle- and high-income households. They estimate around $91 billion in tax cuts could be seen from February to April 2026, with roughly $59 billion going out as refunds and the rest covering unpaid taxes.
In a separate analysis released by JPMorgan Asset Management in August, it was noted that while some filers will experience larger refunds, others may still find the IRS withholding schedule largely unchanged. Refunds typically arise from overwithholding throughout the year, particularly for W-2 employees.
This information comes at a time when many families are feeling financial strain due to the ongoing government shutdown and impending funding deadlines related to food assistance programs that benefit over 40 million Americans.
According to a December 2024 survey by Talker Research, most filers in 2025 plan to use their tax refunds to cover essential expenses such as rent, groceries, and paying off credit card debt. Interestingly, high-income earners are expected to stash away most of their tax refunds instead of spending them in 2026, as anticipated in the Piper Sandler report.
The average tax refund reported by the IRS as of October 17 was $3,052, showing a slight increase from $3,004 in 2024.
Not Everyone Benefits from Bigger Refunds
However, it’s important to note that not all taxpayers will enjoy increased refunds. Alex Muresinu, a senior policy analyst at the Tax Foundation, indicated that while some may see a boost in their refunds in 2026, others might experience minimal changes compared to previous years.
He pointed out that some new tax breaks will apply to specific income types, like overtime and tips, but these come with limitations and income caps. Additionally, there may be an expanded federal deduction limit, particularly for state and local taxes, or SALT, which many taxpayers do not claim because the benefits are restricted to those who itemize their deductions.
Overall, Trump’s new law carries forward significant tax cuts originally introduced in 2017. “The basic structure will resemble what we’ve gotten used to over the last eight years,” Muresianu noted.
