As tax season approaches, millions of American households are in for a pleasant surprise. The One Big Beautiful Bill Act (OBBBA), President Trump's signature fiscal legislation signed into law in July 2025, included several retroactive tax provisions that will boost refunds for returns filed in early 2026.

According to estimates from the Tax Foundation and Treasury Department, refunds will average $300 to $1,000 more than in a typical year. Treasury Secretary Scott Bessent has gone further, predicting "gigantic" refunds of $1,000 to $2,000 for many middle-class families.

Why Refunds Will Be Larger

The mechanics behind the refund boost are straightforward but important to understand. When the OBBBA became law in mid-2025, the IRS did not update employer withholding tables for the remainder of the year. This means most workers had taxes withheld from their paychecks based on the old, higher rates—even though they'll owe taxes at the new, lower rates.

The difference between what was withheld and what's actually owed will flow back to taxpayers as larger refunds. The House Ways and Means Committee estimates the average refund could reach $4,151 during the 2026 filing season, up from roughly $3,100 in recent years.

Key Provisions Driving Refund Increases

Higher SALT Deduction Cap

For itemizers, the biggest change is the state and local tax (SALT) deduction cap, which increased from $10,000 to $40,000 for 2025. This provision primarily benefits taxpayers in high-tax states like California, New York, and New Jersey, where state income and property taxes can easily exceed the old cap.

Expanded Child Tax Credit

The child tax credit received a boost, providing additional relief for families with children. The expansion includes higher income phase-out thresholds, meaning more middle-class families will qualify for the full credit.

Larger Standard Deduction

For the majority of filers who don't itemize, the standard deduction increased, reducing taxable income across the board.

No Tax on Tips, Overtime, and Social Security

Workers in tipped industries, those who work overtime, and Social Security recipients will see targeted relief from provisions eliminating taxes on these income sources. While the full impact will be felt in 2026 withholdings, retroactive application means refunds will reflect the changes.

"Americans are going to see gigantic tax refund checks coming. For families making under $200,000, we're talking $1,000 to $2,000 more than they would have received."

— Treasury Secretary Scott Bessent

The Aggregate Economic Impact

Economists estimate the total refund boost will inject between $30 billion and $100 billion into the economy during the first half of 2026. This stimulus effect—essentially a cash infusion to households that over-withheld in 2025—is expected to support consumer spending through the spring.

However, the flip side is worth noting: because withholding tables have been adjusted for 2026, workers will see smaller refunds next year (or may even owe taxes if they don't adjust their withholdings). The current refund boost is a one-time effect from the retroactive application of 2025's mid-year tax changes.

What About the Tariff Dividend?

Separate from the tax refund boost, there has been speculation about a potential $2,000 "tariff dividend" check—a direct payment to Americans funded by tariff revenue. President Trump has floated this idea publicly, drawing comparisons to the COVID-era stimulus checks.

However, unlike automatic tax refunds, tariff dividend checks would require Congressional legislation. No such bill has been introduced, and the ongoing Supreme Court case over tariff legality adds another layer of uncertainty. For now, Americans should not count on receiving a separate tariff dividend payment.

Planning for Your Refund

To maximize your refund, consider these strategies:

  • Itemize if you're close: With the higher SALT cap, some filers who previously took the standard deduction may benefit from itemizing.
  • Document tip and overtime income carefully: These provisions have specific requirements, so maintain good records.
  • File early: Getting your refund sooner allows you to put the money to work—whether paying down debt, investing, or building emergency savings.
  • Review withholdings for 2026: If you're getting a very large refund, consider adjusting your W-4 to reduce withholding and increase take-home pay throughout the year.

The IRS begins accepting 2025 returns on January 27, 2026. For most filers using direct deposit, refunds typically arrive within 21 days of acceptance. This year, with larger refunds in play, early filing could mean an early windfall.