While millions of Americans face the pressure of rising prices at supermarkets and gas stations, unexpected and substantial relief is on the horizon. Tax refunds for fiscal year 2025, which will be filed and received mostly in 2026, will be anything but routine.
Preliminary analyses project significantly larger IRS checks, with average increases of around $1,000 and potentially exceeding 30% for some taxpayers. A tsunami of capital, potentially exceeding $400 billion in total, is about to flow into household bank accounts.
Tax Refunds: The IRS’s $400 Billion Mistake
At the heart of this phenomenon is the One Big Beautiful Bill Act (OBBBA), also known as the Working Families Tax Cuts Act. Passed in the summer of 2025 with Republican support and made retroactive to January 1 of that year, this legislation introduced a series of deductions and credits that the payroll withholding system couldn’t absorb in time.
“It’s a classic case of a disconnect between policy and tax mechanics,” explains Dr. Elena Vásquez, an economist at the Institute for Tax Studies. “Congress approves sweeping changes, but the withholding system continues to operate by the old rules. The result is a massive overpayment that is only corrected when filing a tax return.”
The provisions are numerous and target key segments of the electorate. The deductible standard took a historic leap: $15,750 for single individuals (an increase of $750) and $31,500 for married couples filing jointly (an increase of $1,500).
The SALT Deductions and Tax Credits Increased
For residents of high-tax states like California and New York, the relief is even more significant: the State and Local Income Tax (SALT) cap quadrupled, rising from $10,000 to $40,000. Those over 65 have a new, exclusive deduction of $6,000.
Perhaps the most innovative measures are those aimed at the working class. For the first time, a portion of tips and overtime pay is excluded from taxable income for certain income brackets. In addition, a deduction for car loan interest is introduced, a direct gesture to a country heavily reliant on private vehicles. Families, meanwhile, will see the Child Tax Credit (CTC) increased by $200 for each qualifying child.
However, the law is only part of the equation. The IRS’s decision not to update the federal withholding tables for employers in 2025 acted as a force multiplier. Payroll departments across the country continued withholding taxes as if the OBBBA didn’t exist, creating a systematic overpayment on every paycheck.
“It was a conscious choice,” admits a Treasury official who asked to remain anonymous because he is not authorized to speak publicly. “Updating the tables mid-year would have created administrative chaos for businesses. It was preferred that the adjustment be made on the annual return, even though that concentrated the impact.”
Not Everyone Will See Larger Tax Refunds
The context is a political quest for relief from persistent inflation in basic goods. According to models, the benefits will be most pronounced for middle-income households (between $50,000 and $150,000), families with children, hourly workers, and retirees. However, the macroeconomic downside is grim: these cuts are estimated to add about $3 trillion to the federal deficit over the next decade.
Here’s one last thing to remark: not everyone will see a larger check. “Every situation is unique,” cautions tax preparer Charles Johnson. “A self-employed individual, an investor with substantial capital gains, or someone who has already voluntarily adjusted their withholdings might not notice a difference, or could even end up in debt. This isn’t a one-size-fits-all gift check.”
Furthermore, the IRS is accelerating the elimination of paper checks, so those without direct deposit set up could experience significant delays. For those claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit, an anti-fraud law means their refunds won’t be issued before early March 2026.
