- Tax refunds in early 2026 could be $1,000 to $2,000 larger for many households due to retroactive tax law changes.
- Larger refunds mean you overpaid your taxes throughout 2025.
- Many of the new deductions and credits reduced taxes without changing paycheck withholding.
Americans may be heading into their biggest tax refund season ever — though it may be one of the freshest tax refund seasons in recent memory.
Secretary of the Treasury Scott Besant Recent changes to the tax code could result in larger tax refunds “$1,000 to $2,000” for many families when they file their 2025 returns in early 2026, he said this week.
Scott Besent: “I’m honored to be IRS Commissioner — and I can see that we’ll get a huge refund in the first quarter of 2026 because working Americans didn’t change their withholding.” pic.twitter.com/nR6JJLxiez
– Unusual whales (@unusual_whales) December 29, 2025
The White House echoed this claim, citing estimates from Piper SandlerWhich suggests that the average refund could rise by about $1,000 compared to the 2025 filing season. This would put the typical tax refund at about $4,150.
If these projections hold, millions of taxpayers will see more money returned by the IRS — not because taxes suddenly dropped during the year, but because they paid too much along the way.
What a tax refund actually is
Your tax refund is not free money from the government. It is a refund of the taxes you paid that were withheld from your paycheck throughout the year.
When the withholding is higher than your actual tax liability, the IRS sends the difference back after you file your tax return. This means that each month you live on less money than you need, while the government keeps the rest interest-free.
Large refunds can feel like a financial gain, especially for families facing rising costs. But they often indicate that your cash flow during the year was undercounted. In many cases, spreading this money out over 12 months was more beneficial than receiving it all at once.
For example, if your refund ends up being $4,150 (expected average), that actually means you should have received an additional $345 per month last year, or thereabouts An additional $160 per paycheck If you are paid every two weeks.
Why will refunds be huge in 2026?
The Big Beautiful Bill Act (OBBBA) made sweeping changes to deductions and credits starting in tax year 2025. Many of these provisions reduced taxable income or taxes owed, but the IRS has not updated its withholding tables to reflect them.
As a result, millions of workers paid taxes throughout 2025 as if the new benefits did not exist. When tax returns are filed, these savings show up all at once — in the form of larger refunds.
Here are the biggest drivers:
No tax on tips
Workers who receive tips got a new federal tax deduction.
Under the OBBB Act, taxpayers who receive tips “habitually and regularly” can deduct up to $25,000 from tip income. The Treasury Department has issued guidance on eligible “no tip tax” occupations, covering restaurant, hospitality and service industry jobs.
This change does not eliminate taxes on tips, but it does reduce taxable income. Because employers withhold taxes on the full amount during the year, many tipped workers will only receive the benefit when they file their returns.
No tax on overtime
employees who Earning overtime pay is now eligible for a new deduction.
Workers can deduct up to $12,500 in qualified overtime pay, or $25,000 for married couples filing jointly. Income limits of $150,000 apply for solo filers and $300,000 for joint filers.
Only the overtime “premium” (half the overtime required by federal law) qualifies. Overtime created by state laws or employer policies does not count.
Again, the deduction was based on full taxable wages, so the tax savings arrive later as a refund.
The interest on a car loan becomes tax deductible
Starting in tax year 2025, taxpayers can deduct up to $10,000 in interest paid on auto loans for new vehicles assembled in the United States.
The discount applies only to personal use vehicles and is phased out for high-income households. Most eligible taxpayers will save a few hundred dollars, depending on the size of the loan and their tax bracket.
Because this deduction is not reflected in the salary withholding, its effect appears at the time of submission.
Senior Bonus discount.
Taxpayers age 65 and older received an additional standard-style deduction.
Single filers with a MAGI of less than $75,000 can deduct up to $6,000, while married couples filing jointly can deduct up to $12,000 if both spouses qualify. For retirees and older workers, this ruling alone could reduce federal taxes by thousands of dollars.
This reduction directly increases refunds for those who had their taxes withheld throughout the year.
Increase salt discount 4x
OBBB raised the maximum deduction for state and local taxes (SALT) from $10,000 to $40,000 per household.
This change primarily helps taxpayers in high-tax states who itemize their deductions. A family that pays $40,000 in property and state income taxes can now deduct the full amount, significantly lowering its federal tax bill.
The cap is set to expire in 2030, but for now it is another contributor to larger recoveries.
Elder child and dependent care loans and deductions
The law also expanded several tax benefits related to children. The maximum child tax credit increased slightly to $2,200.
The child and dependent care tax credit was increased for some families, limits on tax-exempt child care benefits through employers were raised, and incentives for businesses to provide child care were expanded.
Each change is modest, but together they reduce tax liability (and increase refunds) for many parents.
Charitable deductions are returned for non-itemized tax returns
Taxpayers who take the standard deduction can deduct cash charitable gifts again.
The new rule allows deductions of up to $1,000 for single filers and $2,000 for joint filers. Only cash donations to qualifying charities are counted, and documentation is required.
For families that donate regularly but do not allocate, this requirement quietly reduces the taxes owed.
What should taxpayers do next?
Getting a big refund in 2026 may seem like good news, but it also serves as a reminder to check your withholding.
If these tax changes remain in effect, amending your W-4 can help keep more money in your paycheck throughout the year instead of waiting for your refund in the spring.
If you have a large sum of money, now is a good time to pay off debt, establish an emergency fund, and maybe even start investing your tax refund.
The largest refunds in history may be coming, but most of that money was already yours.
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