The Internal Revenue Service (IRS) is preparing for a 2026 tax season that, according to analysts and officials, could break records for the amount of tax refunds returned to taxpayers. This scenario is a direct consequence of the implementation of the One Big Beautiful Bill (OBBBA), enacted on July 4, 2025, whose provisions are retroactive to the beginning of the fiscal year.
Because the IRS did not update payroll withholding tables during 2025 to reflect the new tax cuts, millions of workers have had higher withholdings than they should have, accumulating an excess that will be refunded in a lump sum when they file their returns.
Why Your 2026 Tax Refund Might Be Much Larger Than Expected
Treasury Secretary Scott Bessent has been one of the spokespeople to highlight this effect. During an appearance on the All-In Podcast, Bessent noted that the retroactive effects of the legislation mean households could see “refunds of $1,000, $2,000” after filing their returns in early 2026.
President Donald Trump has publicly endorsed these projections, stating in a speech from the White House that “next spring is projected to be the biggest tax refund season of all time.”
What Tax Experts Say About the Upcoming Season
The magnitude of the phenomenon has been quantified by external analyses. The financial services firm Piper Sandler, cited by the administration, estimated that the typical refund could increase by approximately $1,000 on average compared to the 2025 tax season.
Nancy Vanden Houten, chief economist at Oxford Economics, explained in an October report that “as a result, many taxpayers will pay too much tax this year and see either larger tax refunds or smaller tax bills next year.”
What About the New Tax Provisions
The One Big Beautiful Bill Act introduces a number of substantial changes to the tax code that will affect 2025 tax returns, which are filed in 2026. One of the most significant changes is the increase in the standard deduction.
For the 2025 tax year, this amount is set at $15,750 for individual taxpayers, $31,500 for couples filing jointly, and $23,625 for heads of household. These figures represent a 5% increase over the values originally adjusted for inflation for 2025.
New Expanded Tax Deductions and More to Know
The law also creates entirely new temporary deductions, effective from 2025 to 2028. For tipped workers, a deduction of up to $25,000 per year is established. Similarly, for overtime income, the maximum deduction is $12,500 for individual returns and $25,000 for joint returns.
Both deductions, described in the law as “no tax on tips” and “no tax on overtime,” are available whether the taxpayer itemizes deductions or opts for the standard deduction. However, their amounts are progressively reduced for taxpayers with a modified adjusted gross income above $150,000 ($300,000 for joint returns) and require the worker to have a valid Social Security number.
Another new feature is a temporary deduction for individuals aged 65 and older, amounting to $6,000 per eligible taxpayer (or $12,000 if both spouses qualify and file jointly). This deduction, available regardless of itemized deductions, is phased out for individuals with incomes above $75,000 ($150,000 for joint returns) and disappears altogether above $175,000.
An analysis by the Bipartisan Policy Center clarifies that “the additional tax deduction does not benefit retired households with taxable income below the standard deduction,” meaning that many low-income seniors may not receive any benefit from this provision.
The Mechanism That Generates Higher Refunds
The primary technical reason for the expectation of “gigantic” or “very large” refunds lies in an administrative lag. Although the One Big Beautiful Bill was enacted in July 2025 with retroactive effect to January, the IRS did not modify the withholding tables that employers use to calculate the tax withheld from each paycheck. Therefore, throughout 2025, workers’ wages have been subject to withholdings based on the previous, more burdensome tax law.
Don Schneider, an economist at Piper Sandler, explained it during a podcast in October: “People aren’t adjusting their withholdings this year. It would be quite difficult to do so; it’s not even known how much the tax on overtime, tips, or anything like that will be reduced.” Schneider added, “When people do file their returns, I think they’re going to be surprised by very, very large refunds.”
Instead of receiving a gradual increase in their take-home pay throughout the year, taxpayers will receive the full benefit of the tax cut all at once when they file their returns.
