Americans may be heading into the largest tax refund season on record - even though it may be one of the latest start tax refund seasons in recent memory.

Treasury Secretary Scott Bessent said this week that recent tax law changes could result in tax refunds that are “$1,000 to $2,000” larger for many households when they file their 2025 returns in early 2026.

The White House has echoed that claim, pointing to estimates from Piper Sandler, suggesting the average refund could rise by roughly $1,000 compared with the 2025 filing season. That would put the typical tax refund at about $4,150.

If those projections hold, millions of taxpayers will see more money returned by the IRS - not because taxes suddenly fell during the year, but because they paid too much along the way.

What A Tax Refund Actually Is

A tax refund is not free money from the government. It is a refund of the taxes you paid that were withheld from your paychecks throughout the year.

When withholding is higher than your actual tax liability, the IRS sends the difference back after you file your return. That means you lived on less money every month than you needed to, while the government held onto the rest interest-free.

Large refunds can feel like a financial win, especially for families facing rising costs. But they often signal that your cash flow during the year was tighter than necessary. In many cases, spreading that money across 12 months would have helped more than receiving it all at once.

For example, if your refund really does end up being $4,150 (the average predicted), that actually means you should have taken home an extra $345 per month last year, or nearly $160 more per paycheck if you were paid bi-weekly.

Why Refunds Are Going To Be Huge In 2026

The One Big Beautiful Bill Act (OBBBA) made sweeping changes to deductions and credits starting with the 2025 tax year. Many of those provisions reduced taxable income or taxes owed, but the IRS did not update withholding tables to reflect them.

As a result, millions of workers paid taxes throughout 2025 as if the new benefits did not exist. When tax returns are filed, those savings appear all at once — in the form of larger refunds.

Here are the biggest drivers:

No Tax On Tips

Workers who receive tips gained a new federal tax deduction.

Under the OBBB, taxpayers who “customarily and regularly” receive tips can deduct up to $25,000 in tip income. The Treasury Department released guidance on qualifying "No Tax On Tips" occupations, covering restaurant, hospitality, and service industry jobs.

This change does not eliminate taxes on tips, but it lowers taxable income. Because employers withheld taxes on the full amount during the year, many tipped workers will see the benefit only when they file their returns.

No Tax On Overtime

Employees who earn overtime pay now qualify for a new deduction.

Workers can deduct up to $12,500 of qualified overtime pay, or $25,000 for married couples filing jointly. Income limits apply at $150,000 for single filers and $300,000 for joint filers.

Only the overtime “premium” (the extra half-time required under federal law) qualifies. Overtime created by state laws or employer policies does not count.

Again, withholding was based on full taxable wages, so the tax savings arrive later as a refund.

Auto Loan Interest Becomes Tax Deductible

Starting with the 2025 tax year, taxpayers can deduct up to $10,000 in interest paid on auto loans for new, U.S.-assembled vehicles.

The deduction applies only to personal-use vehicles and phases out for higher-income households. Most eligible taxpayers will save a few hundred dollars, depending on loan size and tax bracket.

Because this deduction was not reflected in paycheck withholding, its effect shows up at filing time.

"Senior Bonus" Deduction

Taxpayers age 65 and older gained an extra standard-style deduction.

Single filers with MAGI under $75,000 can deduct up to $6,000, while married couples filing jointly can deduct up to $12,000 if both spouses qualify. For retirees and older workers, this provision alone can reduce federal taxes by thousands of dollars.

That reduction directly increases refunds for those who had taxes withheld all year.

SALT Deduction Increased 4x

The OBBB raised the cap on the state and local tax (SALT) deduction from $10,000 to $40,000 per household.

This change primarily helps taxpayers in high-tax states who itemize their deductions. A household paying $40,000 in property and state income taxes can now deduct the full amount, significantly lowering its federal tax bill.

The higher cap is scheduled to expire in 2030, but for now it is another contributor to larger refunds.

Bigger Child And Dependent Care Credits and Deductions

The law also expanded several child-related tax benefits. The Child Tax Credit maximum increased slightly to $2,200.

The child and dependent care tax credit increased for some families, limits on tax-free child care benefits through employers rose, and incentives for businesses to offer child care were expanded.

Each change is modest, but together they reduce tax liability (and increase refunds) for many parents.

Charitable Deductions Returned For Non-Itemized Tax Returns

Taxpayers who take the standard deduction can once again deduct cash charitable gifts.

The new rule allows deductions of up to $1,000 for single filers and $2,000 for joint filers. Only cash donations to qualified charities count, and documentation is required.

For households that give regularly but do not itemize, this provision quietly lowers taxes owed.

What Taxpayers Should Do Next

A large refund in 2026 may feel like good news, but it is also a reminder to review your withholding.

If these tax changes remain in place, adjusting your W-4 could help keep more money in your paycheck throughout the year instead of waiting for a spring refund.

If you do get a big refund, now's the time to pay off debt, build an emergency fund, and maybe even start investing your tax refund.

The largest refunds in history may be coming — but most of that money was already yours.

Don't Miss These Other Stories: