Expect a Bigger Tax Refund This Year: Here’s Why
Many taxpayers may be in for a pleasant surprise this tax season. With recent changes to tax laws, there is potential for a larger refund than usual. The “Big Beautiful Bill,” initiated by President Donald Trump, implemented significant tax reforms. These changes include the extension of tax cuts from 2017 and new measures that could translate to higher refunds in 2026.
Key Features of Recent Tax Changes
- New deductions for Social Security benefits for seniors.
- Increased child tax credit.
- Deductions for taxes on tips and overtime pay.
Taxpayers may not notice these benefits in their paychecks yet. As the IRS has not updated withholding rates for the current year, many taxpayers may see additional amounts withheld from their wages. This over-withholding can result in a larger tax refund when they file in 2026.
Expected Increase in Tax Refunds
According to the Tax Foundation, the average tax refund is projected to rise from $3,052 in 2024 to $3,800 in 2025. This increase could vary depending on individual situations. For some, especially middle- and upper-middle-income earners, the new tax cuts will offer more substantial refunds.
Factors Influencing Your Refund
Several elements can impact the amount of your tax refund:
- Your income level.
- The number of dependents you claim.
- Your state of residence, especially if you live in high-tax areas like New York or California.
For parents, the increase in the child tax credit could provide significant benefits. Moreover, individuals eligible for deductions related to tips, overtime, or auto loan interest may see those advantages reflected in their tax refund.
Understanding Your Tax Situation
The increase in average refunds might not apply uniformly. Some taxpayers may benefit from standard deductions or child tax credits, while others may notice only modest changes. It’s essential for individuals to assess their unique financial situations to understand how the new tax reforms affect them.
The IRS will update its withholding tables for tax year 2026. This means your paychecks will reflect the new tax system in the coming year, incorporating adjustments to the standard deduction and child tax credit.
As you prepare for the upcoming tax season, consider reviewing your W-4 form. Updating your withholding can help align your tax contributions with your expected refund, ensuring a smoother financial experience going forward.
