The United States’ forecast for the 2026 tax season, which covers 2025 income, brings with it news that could sound like music to millions of pockets: a potential increase in IRS refunds of up to $1,000, or even more, for a significant portion of taxpayers.
This is not a simple estimate, but the direct consequence of a monumental legislative change known informally as the One Big Beautiful Bill Act (OBBBA), enacted by President Donald Trump on July 4, 2025.
Bigger Tax Refunds Ahead? Why 2026 Could Be a Record Year
This law, also affectionately nicknamed the “Working Families Tax Cut,” did not simply solidify many of the most popular provisions of the Tax Cuts and Jobs Act of 2017. What was truly transformative was the introduction of a series of deductions and credits with a retroactive effect, designed to alleviate the tax burden.
The expected result is not only a lower annual tax liability, but an involuntary ‘overpayment’ of taxes during the year, which now translates into larger refunds when the return is filed.
Market experts, such as those at Piper Sandler, have put numbers to this expectation: the average payout, which in 2025 was around $3,151, could skyrocket to about $4,151 in 2026. This jump, which represents an increase of approximately one third, would add up to the impressive figure of an additional $90 billion injected directly into the pockets of taxpayers.
Why Does the IRS Owe You More Money? The Key to Withholdings
The key to this effect lies precisely in the retroactive nature of the OBBBA. The law applied tax benefits to income already generated in 2025, but employers’ tax withholding systems were not immediately adjusted mid-year. This mismatch created a surplus of payments that the IRS must now return.
The main reason for this phenomenon is simple, although with complex ramifications: the IRS failed to update its withholding tables in time after the OBBBA was passed. Consequently, during the second half of 2025, most workers continued to pay taxes under the old rules.
When the moment of truth arrives, when applying the new and generous deductions and credits to calculate the actual tax liability, the taxpayer finds themselves with a balance in their favor.
Explaining It More: Tax Deductions and More
Two clear examples of these deductions are the exemptions for tips and overtime, which directly reduce taxable income. Another big benefit is the increase in the cap on the state and local income tax deduction (SALT), which went from $10,000 to the much more comfortable figure of $40,000.
This is a lifeline for residents of high-tax states, such as California or New York, who have historically felt the pinch of the previous cap.
Added to this are the inflation adjustments to standard deductions and tax brackets (brackets), a vital mechanism to avoid the dreaded “bracket creep“, which pushes taxpayers into higher brackets even though their real purchasing power has not improved.
The OBBBA not only made lower tax rates permanent, but also kept the larger deductions, which is estimated to inject between $50 billion and $91 billion in tax relief, most of it channeled through these surprise refunds. It is crucial to remember, however, that these benefits, while significant, are temporary in some respects, with an expiration date in 2028, and their impact varies greatly depending on the type of income and residence.
Who Will Be the Luckiest?
The biggest winners of this reform are concentrated in middle and upper-middle income households, those that report annual earnings between $60,000 and $400,000. This group, especially if they have income from tips or overtime, or if they reside in states with a high local tax burden, they will see the most substantial increases.
Workers in the service industry, such as waiters, baristas, drivers, or those who can deduct up to $25,000 in tips. Similarly, hourly employees in sectors such as manufacturing or construction can benefit from up to $12,500 in deductions for overtime pay. Families with children are not left behind, as the Child Tax Credit has been raised to $2,200 per dependent, and is partially refundable.
Elder Americans to Get Better Tax Benefits
Even adults over 65 get a nod with an additional $6,000 deduction. And for recent vehicle buyers, the law allows deductions of up to $10,000 in loan interest for cars assembled in the U.S. However, the feast is tempered for higher incomes, with elimination phases starting at $150,000 for single people on deductions for tips and overtime.
On the other hand, low-income taxpayers (below $50,000) might notice a limited impact if they already use the standard deduction and do not qualify for itemized deductions.
One last tip: Adjust your W-4
Although the prospect of a large refund is exciting, tax experts stress the importance of adjusting withholdings using Form W-4 as soon as possible.
A large refund essentially means that you lent money to the government interest-free for the entire year. Using estimation tools and consulting a tax professional is the best strategy to ensure that benefits are maximized and that the taxpayer receives what they are entitled to, no more and no less.
