Why are tax refunds going to be higher in 2026?


Editorial team Published on

Tax refunds are higher in 2026 primarily due to retroactive tax cuts from the One Big Beautiful Bill Act (OBBBA) passed in 2025 combined with a lag in updated IRS withholding tables.

📉 Core Drivers of Higher Refunds

  • Unadjusted Withholding Tables: Employers did not update paycheck withholding after OBBBA passed, causing systematic over-withholding throughout 2025.
  • Retroactive Tax Relief: The legislation enacted new individual tax cuts retroactive to the start of 2025, turning overpaid withholdings into larger lump-sum refunds.

💡 Key Tax Breaks and Deductions

  • New Deductions: Added tax relief for tip income, overtime earnings, senior citizens, and auto loan interest.
  • Expanded Credits & Thresholds: Permanent extensions of 2017 TCJA provisions alongside enhanced child tax credits and standard deductions.
  • Average Increase: Average individual refunds rose roughly 11% to 18%, translating to an extra $300 to $1,000 per filer compared to previous years.

⚠️ Temporary Anomaly

  • One-Year Effect: Economists note this surge is a temporary accounting artifact.
  • Future Normalization: Paycheck withholdings adjust for subsequent tax years, meaning take-home pay rises later while oversized refunds normalize.