There is some good news on tax refunds this year. This will be the third tax filing season since the beginning of the Covid-19 pandemic. Since the start of the pandemic, the IRS has issued average tax refunds that are lower than the average tax refunds of previous years.
Refunds are commonly used as cash infusions to help pay off debts, save for future needs, or purchase expensive items. The IRS has reported that average refunds for the 2026 filing season are expected to reach approximately $3,800. This represents a significant increase compared to the previous filing season.
While the increase in refund amounts may appear to be positive news for taxpayers, the reasons behind the increase suggest a different financial reality. Much of the rise is due to legislative changes, inflation adjustments, and payroll withholding delays rather than improved financial outcomes for taxpayers.
The Legislative Drivers: The One Big Beautiful Bill Act
The most significant factor behind the current increase in tax refunds is the One Big Beautiful Bill Act (OBBBA), which was signed into law in mid-2025.
This legislation converted several temporary tax provisions into permanent ones that will now appear on tax returns for the first time. One of the most impactful changes is the increase in the standard deduction.
For the 2025 tax year (filed in 2026), the standard deduction increased to $31,500 for married couples filing jointly and $15,750 for single filers.
Because these changes occurred in the middle of the year, many employers did not have enough time to update payroll withholding systems. As a result, many employees had too much federal tax withheld during 2025. The extra withheld amount is now being returned as larger tax refunds.
Additionally, the Child Tax Credit (CTC) has increased from $2,000 to $2,200 per qualifying child. Families with three qualifying children could see up to $600 more in refunds due to this change alone.
Inflation Adjustments and Protection From Bracket Creep
Inflation has been a major economic factor over the past few years. To prevent “bracket creep,” the IRS adjusts tax brackets annually. Bracket creep occurs when salary increases meant to offset rising living costs push taxpayers into higher tax brackets even though their purchasing power has not improved.
For the 2026 filing season, the IRS adjusted certain tax parameters by approximately 2.7% to 4%. As a result, more income is taxed at lower rates compared to previous years.
Combined with the permanent tax structure introduced by the OBBBA, many middle-class taxpayers will see overall tax liabilities decrease compared to last year.
| Tax Metric | 2025 Tax Season | 2026 Tax Season | % Change |
|---|---|---|---|
| Average Refund Amount | $3,382 | $3,742 | +10.6% |
| Standard Deduction (Joint) | $29,200 | $31,500 | +7.9% |
| Maximum Child Tax Credit | $2,000 | $2,200 | +10% |
| Maximum Earned Income Tax Credit | $7,830 | $8,046 | +2.8% |
New Targeted Deductions for Workers and Seniors
This tax season also introduces new deductions designed to benefit specific groups of workers.
New deductions for tips and overtime income allow certain employees to reduce their taxable income. Workers in service industries, manufacturing, and healthcare—where overtime is common—could potentially reduce their taxable income by thousands of dollars.
There is also a significant expansion of deductions for seniors. Taxpayers aged 65 and older who are still working may deduct an additional $6,000 from their taxable income.
This deduction begins to phase out only at relatively high income levels. For some retirees whose income consists mainly of Social Security and small pensions, this change could eliminate federal income tax liability entirely. As a result, they may receive refunds of previously withheld taxes.
Managing Your Refund and Planning Ahead
While receiving a $3,800 tax refund may feel like a financial bonus, it is important to remember that a tax refund represents money that taxpayers loaned to the government interest-free throughout the year.
If you regularly receive large refunds, it may indicate that your W-4 withholding is not aligned with current tax laws.
Many taxpayers prefer to keep more of their income in their regular paychecks rather than waiting for a large refund after tax season.
The IRS has also announced that inflation adjustments will continue in future years. In fact, projections already suggest that the standard deduction could rise to $32,200 for married couples by 2028.
Taxpayers expecting similar deductions for overtime or tips in future years should consider reviewing their withholding using the IRS Withholding Estimator to ensure accuracy for the upcoming tax year.
Filing Trends and IRS Service Improvements
The IRS has reported improvements in taxpayer services during the 2026 tax season thanks to increased funding.
More than 200 Taxpayer Assistance Centers have extended their hours through April 2026 to help taxpayers understand the complexities introduced by the OBBBA.
E-filing continues to dominate the filing process, with approximately 98% of tax returns now submitted electronically.
Most taxpayers who file electronically and choose direct deposit receive their refunds within about 21 days. However, refunds involving the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) may experience delays due to additional fraud-prevention checks.
Overall, the 2026 tax season reflects a combination of legislative reforms and inflation adjustments designed to stabilize taxpayer liabilities during an uncertain economic period.
FAQs
Q1 Why is my tax refund higher in 2026 than last year?
The increase is largely due to the One Big Beautiful Bill Act (OBBBA), which raised the standard deduction and expanded the Child Tax Credit. Additionally, IRS inflation adjustments shifted tax brackets, allowing more income to be taxed at lower rates.
Q2 What are the new deductions for tips and overtime?
New provisions allow certain amounts of income earned from tips and overtime to be deducted from gross income. This reduces the amount of income subject to federal tax, which can increase refund amounts for eligible workers.
Q3 What is the tax filing deadline for 2026?
The federal tax filing deadline is April 15, 2026. Taxpayers may request an extension until October 15, 2026 to file their return, but any taxes owed must still be paid by the April deadline to avoid penalties.
