Larger tax refunds in 2026 expected, thanks to Trump tax law and IRS delay: Economist

The average federal income tax refund in 2024 was $3,138 based on IRS data through Dec. 27, down 0.9% from the same period in 2023.

Americans, particularly the affluent, are set to receive larger tax refunds or smaller tax bills when they file in 2026, because of President Donald Trump’s tax and spending package passed in July, an economist said.

Total taxpayer savings could amount to an additional $50 billion because the IRS has yet to update its withholding tables to account for new provisions retroactive to the start of 2025, Oxford lead economist Nancy Vanden Houten said in a report this week.

The only way taxpayers can benefit from the retroactive provisions in 2025 like the additional senior deduction, no tax on tips or overtime or higher child tax credit is by lowering their tax payments made through withholding or estimated tax payments, she said. But employers are still calculating employee withholdings, or how much federal income tax to deduct from an employee's paycheck, using the higher rates despite the law's passage in July. Each year, the IRS updates the tables to account for inflation and tax law changes.

With so many Americans still struggling under the weight of high prices of everything from beef to insurance premiums, tax savings could be welcome news, but Vanden Houten warns that most of the benefits will go to the wealthy.

“The benefits of the new retroactive tax cuts skew disproportionately to taxpayers in the top income quintile,” she said. Based on an earlier analysis of the new tax law by the nonpartisan think tank, Tax Policy Center, all income groups on average benefit from the tax cuts, but high-income households benefit the most.

What could $50 billion more tax savings mean to Americans?

A $50 billion increase in tax refunds would be about 17% more than last year’s roughly $275 billion total, according to IRS data. That’s especially significant considering the increase in refunds in 2025 from 2024 was only 2%.

The average refund in 2025 was $2,939. A 17% increase would be nearly $500 more, but remember, not all $50 billion in additional tax savings may be in refunds.

“It may be that taxpayers are simply (choosing) to reduce their tax liability further when final payments are due in April of next year,” Vanden Houten said.

And of course, “taxpayers can reduce their withholdings on their own, and some taxpayers might,” she said. But “there is no evidence that this is occurring on a significant scale.”

Why do tax savings mostly help wealthy Americans?

The increase in the state and local tax, or SALT, deduction provides the biggest boost to rich Americans, analysts said.

Trump’s package temporarily raises the cap on the SALT deduction to $40,000 for some households who itemize their taxes. It also allows some owners of businesses like partnerships and sole proprietorships to avoid the SALT deduction cap entirely with state loopholes, the Tax Policy Center said. Wealthy people tend to have state and local tax bills that exceed the cap when they itemize.

Will larger tax savings boost the economy?

People generally spend at least some, if not all, of their refund. In May 2005, 64% of 2,000 taxpayers in a survey commissioned by TaxSlayer and conducted by Talker Research had either already spent their tax refund money or planned to soon.

Vanden Houten forecast any boost to the economy would come in the first half of 2026 but warned the impact may be "modest since there isn’t much evidence that consumer spending is being negatively impacted now by the delay in adjustments to 2025 tax payments."

“It may be that consumers are spending (now) in anticipation of larger refunds and lower tax bills next year,” she said.

Additionally, upper-income households disproportionately benefit from the new retroactive tax cuts and likely, through lower tax bills rather than refunds, she said. They’re unlikely to spend more because of tax savings from a lower bill, she said.

Overall, Vanden Houten expects top-income households to spend about 20% of their tax savings while the remaining Americans spend 25%-40% of the incremental boost to refunds.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.

This article originally appeared on USA TODAY: Larger tax refunds in 2026 expected, thanks to Trump tax law and IRS delay: Economist

Reporting by Medora Lee, USA TODAY / USA TODAY

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