Unlocking Larger 2026 Tax Refunds: Trump Tax Cuts and IRS Delays Explained
Discover how the Trump tax law and IRS withholding delays combine to boost 2026 tax refunds, who benefits most, and what taxpayers should watch for in this evolving tax landscape.
Key Takeaways
- IRS delays in updating withholding tables boost 2026 tax refunds
- Trump’s 2025 tax and spending package increases taxpayer savings by $50 billion
- Higher SALT deduction caps mainly benefit wealthy taxpayers
- Average 2025 tax refund was $2,939; 2026 refunds expected to rise by 17%
- Most tax benefits skew toward top income earners, with modest boosts for others
Tax season 2026 is shaping up to deliver a pleasant surprise for many Americans, thanks to a mix of President Donald Trump’s tax and spending package passed in July 2025 and delays in IRS withholding updates. These factors combine to create larger tax refunds or smaller tax bills for taxpayers, especially those in higher income brackets. Economist Nancy Vanden Houten highlights that total taxpayer savings could reach an additional $50 billion, a significant jump from last year’s refund totals.
The IRS’s delay in updating withholding tables means employers are still deducting taxes based on old rates, causing many taxpayers to overpay throughout 2025. When filing in 2026, these overpayments will translate into bigger refunds or reduced final tax bills. However, the benefits are not evenly spread; wealthier Americans stand to gain the most, particularly due to changes in the state and local tax (SALT) deduction.
This article unpacks the reasons behind the expected refund surge, who benefits most, and what taxpayers should consider as they prepare for the upcoming tax season. Understanding these dynamics can help you navigate your finances with confidence and avoid common tax season myths.
Explaining IRS Withholding Delays
Imagine your paycheck as a river flowing steadily into your bank account. Now, picture a dam upstream—this dam is the IRS withholding tables, which tell employers how much tax to hold back. In 2025, despite new tax laws lowering rates and increasing deductions, the IRS hasn’t updated these tables yet. Employers are still withholding taxes as if the old rules apply.
This means many workers are sending more tax upstream than necessary. When tax season rolls around in 2026, the IRS will release that pent-up flow as larger refunds or smaller tax bills. Economist Nancy Vanden Houten points out that this delay could add up to $50 billion in extra taxpayer savings.
But here’s the twist: taxpayers can’t tap into these savings during 2025 unless they adjust their withholding themselves or make estimated payments. Yet, most aren’t doing this in any significant way. So, the IRS delay acts like a surprise bonus come tax time, especially for those whose employers haven’t caught up with the new rules.
Trump Tax Cuts Fuel Refund Growth
The Trump tax and spending package passed in July 2025 is the engine behind these larger refunds. It includes retroactive provisions effective from the start of 2025, such as an additional senior deduction, no tax on tips or overtime, and a higher child tax credit. These changes reduce tax liabilities across the board.
The Tax Policy Center’s analysis confirms that while all income groups benefit, the biggest gains land in the top income quintile. Why? Because the package temporarily raises the cap on the SALT deduction to $40,000 for some itemizers and allows certain business owners to sidestep the cap entirely through state loopholes.
This SALT boost is a jackpot for wealthy taxpayers in high-tax states, who often pay more than the previous $10,000 cap. The result is a significant tax savings that flows through to their refunds or lowers what they owe. For the average taxpayer, the impact is positive but less dramatic.
Who Benefits Most From Refund Boosts
The headline number—$50 billion in extra tax savings—is impressive, but it’s crucial to understand who’s cashing in. The benefits skew heavily toward affluent Americans, particularly those with high state and local tax bills. The SALT deduction changes are the biggest driver here.
For middle- and lower-income taxpayers, the story is different. They do see gains from provisions like the higher child tax credit and no tax on tips or overtime, but these are smaller in scale. The average refund in 2025 was $2,939, and a 17% increase in 2026 would add nearly $500 more on average. However, not all of the $50 billion will come as refunds; some taxpayers will simply owe less when final payments are due.
Interestingly, economists expect that wealthier households will spend about 20% of their tax savings, while other Americans might spend 25% to 40% of their refund boost. This spending pattern reflects different financial priorities and the nature of tax savings—whether it’s a refund windfall or a lower tax bill.
Economic Impact of Larger Refunds
Tax refunds often act like surprise gifts, fueling spending on everything from groceries to gadgets. A 2005 survey found that 64% of taxpayers had already spent or planned to spend their refunds quickly. With the expected 17% jump in refunds for 2026, this could translate into a meaningful boost for the economy in the first half of the year.
However, economist Nancy Vanden Houten tempers expectations, noting that the overall impact may be modest. Consumers might already be spending in anticipation of these larger refunds, so the delay in withholding adjustments hasn’t dampened spending so far.
Moreover, wealthier taxpayers, who receive the lion’s share of the tax savings, are less likely to increase spending significantly from lower tax bills. Their savings might go into investments or paying down debt rather than immediate consumption. So, while the refund surge is good news, it’s not a guaranteed economic game-changer.
Preparing for Tax Season 2026
With these changes on the horizon, taxpayers have some choices to make. Since employers are still withholding based on outdated tables, individuals can adjust their withholding or estimated payments to better match their expected tax liability. Doing so can prevent overpaying throughout the year and reduce the size of the refund—or the surprise tax bill.
Yet, current evidence shows few taxpayers are making these adjustments on a large scale. For many, the larger refund will come as a welcome surprise, a financial cushion amid rising costs for essentials like food and insurance.
Staying informed about IRS updates and Congressional decisions on the Trump tax cuts’ future is key. The tax landscape in 2026 depends heavily on whether these provisions are extended or allowed to expire. Being proactive can help you steer your tax situation away from surprises and toward smarter financial outcomes.
Long Story Short
The 2026 tax season promises to be unlike any other, with IRS delays and Trump-era tax provisions combining to boost refunds and reduce tax bills for many Americans. While the average refund could increase by nearly $500, it’s clear that the wealthiest taxpayers will reap the largest share of these benefits, especially through the temporarily raised SALT deduction cap. For most others, the boost is real but more modest. Taxpayers should keep a close eye on IRS announcements and consider adjusting their withholding or estimated payments to better match their tax liability, though current data shows few are doing so on a large scale. The relief of a larger refund can be a welcome financial cushion amid rising living costs, but it’s wise to plan how to use that windfall—whether for paying down debt, saving, or investing. Ultimately, the interplay of tax law, IRS administration, and political decisions will shape the tax landscape beyond 2026. Staying informed and proactive is the best way to turn these complex changes into financial advantage.