2026 Tax Season May Bring $1,000 Larger Refunds Under New Law Changes
Financial experts are signaling that American taxpayers could receive significantly larger tax refunds in 2026, thanks to retroactive tax changes included in recently passed legislation. Updated projections from leading financial institutions show that next year’s filing season may deliver some of the highest refund amounts in U.S. history. These estimates stem from how the new tax rules interact with the current withholding system—creating an unusual opportunity for taxpayers.
Major Financial Institutions Forecast Larger 2026 Refunds
White House Signals a Record Refund Season
During a press briefing, White House Press Secretary Karoline Leavitt stated that Americans may experience unusually high tax refunds next spring. She noted that changes to tax rules—combined with outdated withholding tables—could result in a record-breaking refund season.
Banking Firms Predict Big Increases
Piper Sandler’s Refund Projection
Investment banking firm Piper Sandler estimates that taxpayers may receive around $1,000 more in refunds in 2026 than in a typical year. They expect total refund amounts to increase by over $91 billion once the new tax law is fully applied.
J.P. Morgan Supports the Same Conclusion
A separate analysis from J.P. Morgan aligns closely with Piper Sandler’s findings. The firm’s economists concluded that excessive withholding throughout 2025—caused by outdated payroll tables—will lead to significantly larger refunds when Americans file their 2025 tax returns in early 2026.
The agreement between two major financial institutions strengthens confidence in the prediction of a massive refund wave.
Retroactive Tax Provisions Create Refund Growth
Key Changes Apply to the Entire 2025 Tax Year
One of the biggest factors driving the expected refund surge is the retroactive nature of several provisions in the One Big Beautiful Bill Act—tax legislation signed by President Donald Trump in July. These changes apply to the full 2025 tax year, even though they were enacted mid-year.
This means that income earned throughout 2025 will be recalculated under new, more favorable tax rules, while taxes withheld from paychecks will still reflect the old system.
Broader Income and Deduction Adjustments
The updated law affects:
- Tips
- Overtime income
- Car loan interest deductions
- Various exemptions and expanded deductions
These broad modifications are designed to lower tax burdens for a wide range of taxpayers.
IRS Decision Not to Update 2025 Withholding Tables
In August, the Internal Revenue Service (IRS) announced that it will not update withholding tables or tax forms for 2025. Employers will therefore continue withholding taxes based on the old rules.
Economist Don Schneider of Piper Sandler explained that because most taxpayers will not update their W-4 forms, this mismatch means over-withholding will continue all year long—producing a large surplus that returns to taxpayers as refunds.
According to Schneider, taxpayers will be “surprised by some really big refunds” in spring 2026.
Why Refunds Will Balloon Despite No Paycheck Increase
Because employers will not adjust payroll systems, taxpayers won’t see extra money in their checks during 2025. Instead, they effectively give the government an interest-free loan, which will be returned in 2026 when returns are filed.
Large refunds often play an important role in household financial planning. Many Americans use them for:
- Major purchases
- Debt repayment
- Emergency savings
- Investing
Thus, bigger-than-usual tax refunds could boost consumer spending in early 2026.
Refund vs. Lower Tax Bill — Key Difference
Schneider emphasized that the benefit from the new tax law may appear in two ways:
- A larger tax refund
- A smaller tax bill when filing
Some taxpayers who usually owe money in April may find that they owe much less in 2026, even if they don’t receive huge refunds. This is still a financial benefit, though it may feel different psychologically.
Variables That May Affect 2026 Refund Outcomes
Several factors could influence whether projections become reality:
1. W-4 Adjustments
Taxpayers who choose to update their W-4 form in 2025 will receive higher paychecks, reducing their refund amount.
2. Income Types
Refund amounts depend heavily on which retroactive provisions apply to each taxpayer.
3. Economic Conditions
Employment levels, economic growth, or a recession could shift refund expectations.
4. IRS Processing Volume
A historically large refund season may create delays or processing challenges for the IRS.
Historical Context for Large Refund Seasons
Analysts say 2026 could rival some of the largest refund seasons in U.S. history. On average, American taxpayers receive about $3,000 in refunds. An extra $1,000 would mark a 33% increase, a dramatic jump.
Past tax reforms, including the Tax Cuts and Jobs Act of 2017, created similar temporary surges in refund amounts due to withholding lags and mid-year implementation.
Taxpayers often treat refunds as a form of forced savings, using lump sums more decisively than small paycheck increases.
Planning Tips for Taxpayers Ahead of 2026
Experts recommend:
1. Reviewing Personal Tax Situations
Each individual’s tax profile is unique; understanding how the new law affects you is essential.
2. Adjusting Withholding for 2026
If taxpayers receive a large refund in 2026, they may want to adjust withholding afterward to avoid consistent over-withholding.
3. Considering a 2025 Mid-Year Change
Those wanting higher monthly income instead of a lump-sum refund should consult a tax professional about adjusting withholding.
4. Staying Updated with IRS Guidance
Monitoring official updates will help taxpayers prepare for the 2026 season, especially if the IRS modifies withholding rules later on.
Social Security has officially released the schedule for retirees receiving benefits this winter, offering clarity to millions who rely on monthly payments. Social Security Confirms December Payments for Retirees Age 70 is an important update, especially for seniors who depend on these funds for essential expenses like healthcare, housing, and daily living costs. The announcement ensures that older beneficiaries know exactly when to expect their deposits, helping them plan their month with confidence and avoid financial uncertainty during the holiday season.
Conclusion
Projected changes in tax legislation combined with outdated withholding tables are setting the stage for what experts believe could be one of the biggest tax refund seasons in U.S. history. With retroactive tax provisions, increased deductions, and unchanged payroll systems, many Americans may receive substantially larger tax refunds in 2026. While individual outcomes will vary, the overall trend strongly suggests that taxpayers will see meaningful financial relief next spring.
FAQs
1. Why are tax refunds expected to increase significantly in 2026?
Because new tax laws apply retroactively to 2025 while employers continue withholding under old rules, creating large over-payments.
2. Will everyone receive a larger refund?
Not necessarily. Individual income types, W-4 adjustments, and deduction eligibility will influence refund size.
3. Are taxpayers required to update their withholding?
No. Without IRS-updated tables, most workers won’t change anything, naturally leading to higher refunds.