Enacted in July, Trump’s multitrillion-dollar legislation included several retroactive tax changes for 2025 that affect returns filed in 2026.
However, the IRS didn’t update withholding tables for employers, which dictate how much to take from workers’ paychecks. As a result, 2025 employee withholdings were based on taxes owed before Trump’s cuts.
“We expect that’s going to pretty dramatically increase refunds on average during the [2026] tax filing season compared to prior years,” said Garrett Watson, director of policy analysis at the Tax Foundation, a nonprofit think tank.
As of Dec. 26, the average refund for individual returns was $3,167 during the 2025 filing season, up slightly from $3,138 in 2024, according to the latest IRS data.
Who could see a bigger tax refund in 2026
Millions of Americans could see a bigger refund or smaller tax bill in 2026, and a few tax breaks will impact a “significant portion” of filers, according to Andrew Lautz, director of tax policy for the Bipartisan Policy Center, a nonprofit think tank.
For 2025, Trump’s legislation increased the standard deduction to $15,750 for single filers and $31,500 for married couples filing jointly, which impacts most filers. That’s up from $15,000 and $30,000, respectively, before the change.
Many families could also see a higher child tax credit. For 2025, the maximum tax break increased to $2,200 from $2,000 for families eligible to claim the full value.
The new $6,000 senior deduction for individuals age 65 and up could also impact many older Americans from 2025 through 2028. The full deduction is available with up to $75,000 in modified adjusted gross income ($150,000 for married couples filing jointly).
Larger tax cuts for fewer Americans
Trump’s legislation also added temporary tax breaks for smaller groups of filers, which could provide “much larger” cuts, according to Lautz.
Some of these include deductions on tip and overtime income, a tax break on auto loan interest, and a higher limit for the deduction for state and local taxes, known as SALT.
Approximately 6 million workers report tipped wages, according to IRS estimates. And nationally, about 6% of workers reported overtime pay in 2024, according to the Peter G. Peterson Foundation, an economic organization.
“Where we’ll see the biggest increases in refund size is actually from the higher SALT cap,” Lautz said.
For 2025, the SALT deduction limit was raised to $40,000, up from $10,000 in 2024, which includes state and local income taxes and property taxes. But you can only claim the SALT deduction if you itemize tax breaks. Roughly 90% of filers don’t itemize, according to the latest IRS data.