American taxpayers filing their tax returns early next year could be in for an unusually large surprise in the form of a refund. According to analyses by financial firms and statements from senior officials, the average refund could increase by approximately $1,000 for the 2026 tax year, corresponding to 2025 income.
This massive increase, however, is not the result of an exceptional economy, but rather a legislative quirk: a major tax law that was applied retroactively and that the Internal Revenue Service (IRS) was unable to reflect in time in payroll withholdings.
Why Your 2026 Tax Refund Could Be Unusually Large
The root cause of this phenomenon lies in the so-called “One Big Beautiful Bill Act” (OBBBA), a tax law signed in July 2025 but with retroactive effects dating back to January 1 of that same year.
The law introduces substantial changes, such as the elimination of taxes on certain overtime and tip income, and, more significantly for many, a dramatic increase in the limit for the state and local income tax deduction, known as SALT, from $10,000 to $40,000. It also includes deductions for interest on new car loans and a special benefit for taxpayers over 65.
Because the IRS did not update payroll withholding tables after the law’s passage, the vast majority of salaried workers have been overpaying throughout 2025, as if the law didn’t exist. The consequence is that when they file their returns and finally claim the new benefits, taxpayers will receive the difference all at once, artificially and significantly inflating their refunds.
A $1,000 Refund Boom Is Coming, But It Won’t Help Everyone Equally
The analysis firm Piper Sandler projects that the average refund, which was $3,151 in 2025, will rise to about $4,151 in 2026—an increase of exactly $1,000. Treasury Secretary Scott Bessent himself has mentioned that households could see an additional $1,000 to $2,000.
But this fiscal tailwind won’t benefit everyone equally. A detailed analysis of the reform reveals a clear pattern of beneficiaries. Middle- and upper-middle-income households—those with annual incomes between $60,000 and $400,000—will be the biggest winners.
Taxpayers earning more than $217,000 a year are estimated to receive roughly six out of every ten dollars of the new benefits. Homeowners residing in high-tax states, such as New York, New Jersey, or California, will be particularly relieved by the increased ceiling on the SALT deduction.
Middle- And High-Income Homeowners Will Gain the Most
At the other end of the spectrum, lower-income households will see little to no benefit from these changes. This is because this group is less likely to itemize their deductions and, therefore, less likely to claim the SALT deduction, opting instead for the standard deduction, which was not affected by this specific law.
For them, the 2026 tax scenario also brings the elimination of the health insurance premium subsidy, which could deal a blow to their household finances. Very high-income earners, meanwhile, will also see their benefit limited, as the advantage of the SALT deduction begins to be phased out for incomes above half a million dollars.
