Why IRS tax refunds are expected to rise in 2026: IRS tax refund 2026: Americans could see up to $1,000 more — why refunds are rising and what taxpayers should do before filing
The key driver is a set of tax cuts enacted in 2025 under President Donald Trump. While tax rates and deductions were adjusted, federal payroll withholding tables were not fully recalibrated for much of the year. As a result, many workers paid more in federal income tax than required. That overpayment is now expected to flow back to taxpayers as refunds.
According to White House estimates released in early February 2026, the average federal tax refund could increase by about $1,000 compared with prior years. In fiscal year 2024, the average refund stood at $3,052. For 2026, analysts project an average near $3,800, though the final number will depend on income, filing status, deductions, and reported earnings.
The increase is not evenly distributed. Workers who earn tips or overtime, married couples filing jointly, and taxpayers who itemize deductions stand to benefit the most. Lower-income filers may see smaller gains, while some households could receive little change at all. Still, the overall trend points to higher refunds for a broad share of US taxpayers.
Why tax refunds are rising in 2026 after 2025 tax cuts
The central reason refunds are rising is simple. Tax law changed faster than paycheck withholding. When Congress passed new tax provisions in 2025, the IRS did not immediately adjust withholding formulas for all employers. That delay meant many workers continued to have taxes withheld at higher rates, even as their actual tax liability fell.
The Tax Foundation estimates that this gap alone could raise refunds by $300 to $1,000 for the average filer. In some cases, especially among higher earners or dual-income households, the increase could be significantly larger.
Another major factor is the expansion of deductions. The standard deduction for single filers increased to $15,750, up from $15,000. For married couples filing jointly, the deduction rose to $31,500, compared with $30,000 previously. These changes reduce taxable income before any credits are applied.In addition, certain workers can now deduct up to $25,000 in reported tip income or $12,500 in overtime pay. This provision is particularly relevant for service industry employees, healthcare workers, and hourly workers who rely heavily on extra shifts. For taxpayers who accurately reported this income throughout the year, the deduction can translate into hundreds or even thousands of dollars in additional refunds.
While refunds are rising, experts caution that a larger refund does not necessarily mean taxpayers are wealthier. In many cases, it reflects money that was overpaid during the year rather than a net gain.
How marital status, income type, and deductions shape refund amounts
Filing status remains one of the most important variables in determining refund size. Married couples filing jointly benefit not only from a higher standard deduction but also from wider income thresholds for certain tax brackets. This reduces effective tax rates for many two-income households.
Single filers see more modest gains, though those with variable income sources, such as tips or overtime, may still experience above-average refunds. Tax analysts note that W-2 workers with stable salaries and accurate withholding are less likely to see dramatic changes compared with workers whose income fluctuates.
Itemized deductions also play a larger role in 2026. The cap on the state and local tax deduction, known as SALT, increased to $40,000 from the long-standing $10,000 limit. This change primarily benefits higher-income households in states with high property taxes or state income taxes.
However, the SALT deduction only applies to taxpayers who itemize. Most Americans use the standard deduction, meaning the expanded SALT cap will not affect them directly. For those who do itemize, particularly homeowners in states like California, New York, and New Jersey, the change can significantly lower taxable income and boost refunds.
Tax professionals emphasize that refund outcomes vary widely. Two households with similar incomes can receive very different refunds based on filing choices, deductions, and how accurately taxes were withheld during the year.
The One Big Beautiful Bill Act and its broader impact on 2026 taxes
Beyond refunds, the One Big Beautiful Bill Act (OBBBA) reshapes the broader tax landscape for 2026. The legislation adjusts marginal tax rates, expands credits, and increases incentives for retirement contributions. According to analysis from GoBankingRates, nearly all income brackets see some benefit, though the size and form of those benefits differ.
Lower- and middle-income households tend to gain through higher standard deductions and expanded child tax credits. These changes often show up gradually in take-home pay rather than as a single refund check. Higher-income taxpayers benefit more from marginal rate adjustments and expanded deduction limits, including SALT.
The bill also alters certain capital gains and investment-related provisions. Taxpayers with significant investment income may notice changes in how gains are taxed, particularly when combined with itemized deductions. Financial planners recommend reviewing withholding and estimated payments for 2026 to avoid future surprises.
Politically, the tax changes arrive during a contentious period. With rising costs for food, housing, and utilities, affordability remains a key issue. Democrats argue the benefits skew toward higher earners, while Republicans point to higher take-home pay and larger refunds as evidence of broad-based relief.
For taxpayers, the takeaway is practical rather than political. Refunds in 2026 are likely to be higher on average, but the exact amount depends on individual circumstances. Reviewing income sources, deductions, and withholding now can help households better understand what to expect when filing season arrives.
FAQs:
1: How much will the average tax refund increase in 2026?
Average IRS refunds in 2026 are projected to rise by $300 to $1,000, based on Tax Foundation and White House estimates. The typical refund could reach about $3,800, up from $3,052 in 2024. The increase is driven by 2025 tax cuts and over-withholding on paychecks.
2: Who qualifies for a higher tax refund in 2026?
Workers who reported tips, overtime, or higher taxable income are most likely to qualify for larger refunds. Taxpayers can deduct up to $25,000 in tip income or $12,500 in overtime pay for 2025. Married couples and higher earners also benefit from larger standard deductions.
3: Why did many workers overpay taxes in 2025?
IRS withholding tables were not fully updated after 2025 tax cuts took effect. As a result, millions of employees paid higher taxes throughout the year. That excess payment is now expected to return as a refund when 2025 returns are filed in 2026.
4: Will the SALT deduction increase raise my 2026 tax refund?
The SALT deduction cap increased to $40,000 for 2025, up from $10,000. However, only taxpayers who itemize deductions can benefit. Most filers use the standard deduction, meaning the impact is concentrated among higher-income homeowners in high-tax states.
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