Breaking: Americans Could See $50 Billion in Larger Tax Refunds in 2026 Due to Trump’s One Big Beautiful Bill
Tax refunds in 2026 could be substantially larger for millions of Americans due to retroactive provisions in the One Big Beautiful Bill Act signed by President Trump in July 2025. Oxford Economics analysis estimates taxpayer savings of up to $50 billion, representing an 18% increase from the $275 billion in refunds distributed in 2025.
The average tax refund in 2025 was $2,939, meaning a 17% boost would add approximately $500 more to typical refunds. However, not all taxpayers benefit equally: those earning $66,801–$119,200 could see average savings of $1,780, while the highest earners making over $5.18 million could receive $286,440 in additional tax relief.
The critical issue delaying larger refunds: The IRS has not yet updated its tax withholding tables for the new tax provisions that became effective January 1, 2025. This creates a situation where millions of employees continue overpaying taxes throughout 2025, resulting in larger refunds when 2025 tax returns are filed in early 2026.
Table of Contents
- One Big Beautiful Bill Act: Overview and Key Tax Changes
- Why Tax Refunds Could Be Bigger in 2026
- New Tax Deductions Retroactive to 2025
- Expanded SALT Deduction: $10,000 to $40,000
- Permanently Extended Tax Brackets and Rates
- Increased Standard Deduction for 2025-2026
- Senior Tax Deduction: $6,000 Additional Benefit
- Tax Refund by Income Level: Who Benefits Most
- How to Optimize Withholding for Emergency Fund Planning
- Expected 2026 Tax Refund Timeline and Amounts
One Big Beautiful Bill Act: Overview and Key Tax Changes
The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, represents the most comprehensive tax legislation since the 2017 Tax Cuts and Jobs Act. The 940-page bill permanently extends Trump’s 2017 tax cuts and introduces new deductions while raising the cap on certain tax provisions.
Core legislative provisions:
Permanent tax bracket extension: The OBBBA makes permanent the seven federal income tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) that were scheduled to expire after 2025. Without this legislation, tax rates would have reverted to pre-2018 levels with a top rate of 39.6%, potentially affecting millions of taxpayers.
New and expanded deductions: The bill creates four new tax deductions effective 2025-2028:
- Tip deduction: Up to $25,000 annually for service workers
- Overtime deduction: Up to $12,500 for overtime pay
- Car loan interest deduction: Up to $10,000 for new vehicle purchases
- Senior deduction: $6,000 ($12,000 for married couples) above the standard deduction
SALT deduction increase: The cap on state and local tax deductions increases from $10,000 to $40,000, with planned incremental increases through 2029
Deficit impact: The Congressional Budget Office estimates the bill will add $4.1 trillion to the federal deficit by 2034, though supporters argue economic growth will offset much of this
Why Tax Refunds Could Be Bigger in 2026
The primary reason for larger 2026 tax refunds stems from a critical administrative gap: the IRS has not updated its tax withholding tables to reflect changes that took effect January 1, 2025.
How withholding works:
Employers use IRS tax withholding tables to determine how much federal income tax to deduct from employee paychecks. These tables translate tax code changes into specific dollar amounts withheld weekly or biweekly.
The 2025 withholding problem:
The new OBBBA provisions became effective January 1, 2025, but the IRS did not immediately update withholding tables to reflect these changes. This means throughout 2025:
- Employees continue having the same withholding amounts deducted as 2024
- New deductions for tips, overtime, and car loan interest are not being considered
- Increased standard deductions are not reflected in withholding calculations
- The expanded SALT deduction is not factored into paycheck withholding
The refund consequence:
By overpaying throughout 2025, taxpayers build up excess tax credits that become apparent when filing 2025 returns in early 2026. This results in larger refunds—mathematically, the IRS is simply returning money withheld in excess of actual tax liability.
Oxford Economics chief economist Nancy Vanden Houten stated: “Consequently, many taxpayers will end up overpaying their taxes this year and will either receive larger refunds or face smaller tax liabilities next year”.
Real-world example:
2025 situation for a middle-income employee:
- Annual salary: $65,000
- Traditional withholding (no change): $8,500 annually
- Newly available deductions (not reflected in withholding): Overtime pay of $3,000 + car loan interest of $5,000 = $8,000 in new deductions
- Actual tax liability: $6,500
- Overpayment: $8,500 – $6,500 = $2,000 refund
This employee would see a substantially larger refund than prior years due entirely to the withholding table lag.
New Tax Deductions Retroactive to 2025
The One Big Beautiful Bill Act created four new tax deductions effective January 1, 2025, representing unique financial benefits for eligible taxpayers.
Deduction 1: Tips (Up to $25,000 annually)
The “no tax on tips” deduction allows service workers and self-employed individuals to exclude up to $25,000 in annual qualifying tip income from federal taxation. This provision particularly benefits hospitality, food service, and personal service workers.
Who qualifies:
- Restaurant servers, bartenders, hotel staff
- Taxi drivers, ride-sharing drivers (for cash tips)
- Hair stylists and personal service providers
- Other workers receiving regular tips
How it works:
- Employees report tips as income on their W-2
- They then claim the deduction on their Form 1040
- Maximum annual deduction: $25,000
Tax savings example:
A bartender earning $35,000 in base salary plus $28,000 in tips:
- Without deduction: Taxed on $63,000
- With deduction (capped at $25,000): Taxed on $60,000
- Tax savings: approximately $6,250 (at 25% marginal rate)
Deduction 2: Overtime Pay (Up to $12,500 annually)
The overtime deduction allows employees to deduct up to $12,500 annually of overtime pay that exceeds their regular compensation rate. This benefits workers in manufacturing, healthcare, construction, and other industries with overtime pay structures.
Who qualifies:
- Employees paid time-and-a-half for overtime
- Workers receiving additional compensation beyond regular hours
- Those with documented overtime pay on W-2
How it works:
- Calculate overtime pay received (beyond regular hourly rate)
- Deduct up to $12,500 of this overtime income
- Report on Schedule 1 attached to Form 1040
Tax savings example:
A manufacturing worker earning $45,000 base salary plus $8,000 in overtime pay:
- Without deduction: Taxed on $53,000
- With deduction: Taxed on $48,000 (only $5,000 of overtime exceeds $12,500 cap)
- Tax savings: approximately $1,250 (at 25% marginal rate)
Deduction 3: Car Loan Interest (Up to $10,000 annually)
New for 2025-2028, the car loan interest deduction allows up to $10,000 in interest paid on new vehicle purchases to reduce taxable income. This deduction applies to vehicles purchased for personal use and meeting eligibility requirements.
Eligibility requirements:
- Vehicle must be new (not used)
- For personal use (not business/commercial)
- Financed with a qualified car loan
- Maximum annual deduction: $10,000
How it works:
- Track interest paid during 2025 on new car loan
- Report on Schedule 1 (Form 1040)
- Cannot be combined with itemized deductions for this specific interest
Tax savings example:
Someone purchasing a $35,000 new vehicle with $8,000 in first-year interest:
- Without deduction: Taxed normally
- With deduction: Deduct $8,000 of car loan interest
- Tax savings: approximately $2,000 (at 25% marginal rate)
Deduction 4: Senior Additional Deduction ($6,000 or $12,000)
Seniors aged 65 and older gain an additional $6,000 deduction (or $12,000 for married couples filing jointly) above the standard deduction available to all taxpayers.
Who qualifies:
- Individual age 65 or older
- Married couples (both 65+) claiming jointly
- Not applicable for those under 65
How it stacks:
- Standard deduction for single filer 65+: $18,500 (2026)
- Additional senior deduction: $6,000
- Total deduction available: $24,500
Tax savings example:
A 67-year-old with $50,000 in taxable income:
- Without additional deduction: Deducts $18,500, taxable income = $31,500
- With additional deduction: Deducts $24,500, taxable income = $25,500
- Tax savings: approximately $1,500 (at 25% marginal rate)
Expanded SALT Deduction: $10,000 to $40,000
One of the most significant tax benefits in the One Big Beautiful Bill Act affects high-income taxpayers through the expanded State and Local Tax (SALT) deduction, which increased from $10,000 to $40,000.
What is the SALT deduction?
The SALT deduction allows taxpayers to deduct state and local income taxes, property taxes, and sales taxes paid during the year. This provision primarily benefits residents of high-tax states like California, New York, New Jersey, and Massachusetts.
Previous limitation (2018-2024):
The Tax Cuts and Jobs Act capped the SALT deduction at $10,000, which significantly reduced the benefit for high-income earners and those in high-tax states.
New OBBBA increase:
The cap increases to $40,000 for tax years 2025-2029, providing substantial tax relief for affected taxpayers.
Phase-out after 2029:
The deduction reverts to the original $10,000 cap beginning 2030 unless Congress takes further action.
Impact by state and income level:
High-tax state resident example (New York, 37% combined state/local rate):
Married couple earning $250,000 with $250,000 home value and $80,000 in annual state/local taxes:
- Previous cap ($10,000): Could only deduct $10,000, losing $70,000 in SALT liability
- New cap ($40,000): Can deduct $40,000, still losing $40,000 but recovering $7,500 in taxes
- Tax benefit: approximately $7,500
Low-tax state resident (Texas, no state income tax):
Same income level but in state with only property taxes totaling $15,000:
Who benefits most from expanded SALT:
- High-income earners ($200,000+)
- Residents of states with high income tax rates (CA, NY, NJ, MA, IL)
- High-value property owners paying substantial property taxes
Permanently Extended Tax Brackets and Rates
The One Big Beautiful Bill Act made permanent the seven federal tax brackets created by the 2017 Tax Cuts and Jobs Act, preventing what would have been a significant tax increase in 2026.
Critical background:
The 2017 Tax Cuts and Jobs Act temporarily reduced individual income tax rates and was scheduled to expire December 31, 2025. Without the OBBBA extension, tax rates would have reverted to pre-2018 levels: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% (instead of current 10%, 12%, 22%, 24%, 32%, 35%, 37%).
Impact of rate reversion without OBBBA:
A single filer with $50,000 in taxable income in 2025:
- Current rate (22% bracket): $4,575 tax
- Pre-2018 rate (25% bracket): $6,275 tax
- Tax increase: $1,700 (37% higher)
A married couple filing jointly with $120,000 taxable income:
- Current rate (22% bracket): $13,890 tax
- Pre-2018 rate (25% bracket): $14,890 tax
- Tax increase: $1,000 (7% higher)
2026 permanent tax brackets:
| Tax Rate | Single | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 10% | $0–$12,400 | $0–$24,800 | $0–$17,700 |
| 12% | $12,401–$50,400 | $24,801–$100,800 | $17,701–$67,450 |
| 22% | $50,401–$105,700 | $100,801–$211,400 | $67,451–$105,700 |
| 24% | $105,701–$201,775 | $211,401–$403,550 | $105,701–$201,750 |
| 32% | $201,776–$256,225 | $403,551–$512,450 | $201,751–$256,200 |
| 35% | $256,226–$640,600 | $512,451–$768,700 | $256,201–$640,600 |
| 37% | $640,601+ | $768,701+ | $640,601+ |
These brackets are adjusted annually for inflation, but the rate structure remains permanent.
Increased Standard Deduction for 2025-2026
The One Big Beautiful Bill Act expanded the standard deduction beyond what inflation adjustments alone would provide.
2025 standard deductions (under OBBBA):
- Single or Married Filing Separately: $15,750
- Head of Household: $23,625
- Married Filing Jointly or Qualifying Surviving Spouse: $31,500
2026 standard deductions (with inflation adjustment):
- Single or Married Filing Separately: $16,100
- Head of Household: $24,150
- Married Filing Jointly or Qualifying Surviving Spouse: $32,200
Pre-OBBBA comparison:
Without the bill’s expansion, standard deductions would have been approximately $13,850 (single) and $27,700 (married filing jointly) in 2025. The bill increased these by roughly $2,000, reducing taxable income substantially for those not itemizing.
Tax savings example (2026):
A single filer earning $60,000 with no itemizable deductions:
- Taxable income: $60,000 – $16,100 = $43,900
- Tax at 22% bracket: approximately $4,858
- Savings from increased standard deduction vs. pre-expansion: approximately $1,250
Senior Tax Deduction: $6,000 Additional Benefit
Beyond the standard deduction increase, seniors aged 65+ qualify for an additional $6,000 deduction ($12,000 for married couples), stacking on top of the higher standard deduction.
2026 total deduction for single senior (age 65+):
- Standard deduction: $16,100
- Additional senior deduction: $6,000
- Total: $22,100
Compare this to the $16,100 available to younger taxpayers—seniors receive an additional $6,000 in tax-free income.
2026 total deduction for married seniors (both 65+, filing jointly):
Tax savings example:
A 68-year-old with $55,000 annual income:
- Using standard deduction only: $55,000 – $16,100 = $38,900 taxable income
- Using standard deduction + additional senior deduction: $55,000 – $22,100 = $32,900 taxable income
- Tax savings: approximately $1,500 (at 22% marginal rate)
Tax Refund by Income Level: Who Benefits Most
The tax refund benefits from One Big Beautiful Bill provisions vary dramatically by income level, with different groups seeing different advantages.
Oxford Economics refund analysis by income bracket:
| Income Level | Average 2026 Tax Savings | % of Total Savings | Primary Benefit Sources |
|---|---|---|---|
| Under $34,000 | $150 | 15% | Standard deduction increase, new deductions |
| $34,001–$66,800 | $650 | 20% | Standard deduction + new deductions (tips, OT) |
| $66,801–$119,200 | $1,780 | 25% | New deductions + tax bracket permanence |
| $119,201–$250,000 | $4,200 | 20% | SALT expansion + all deductions combined |
| $250,001–$5.18M | $85,000+ | 15% | SALT deduction expansion ($40,000 cap) |
| Over $5.18 million | $286,440 | 5% | SALT expansion + high-income benefits |
Analysis of distribution:
The benefits are distributed regressively, with higher-income taxpayers receiving disproportionately larger savings. The SALT deduction expansion, which allows up to $40,000 in deductions, primarily benefits taxpayers earning $200,000+ living in high-tax states.
Conversely, lower-income taxpayers benefit mainly from the increased standard deduction and new deductions for tips and overtime. A server earning $35,000 with $25,000 in tips gains substantial benefit; a higher-income professional in Texas (no state income tax) sees minimal SALT advantage.
Overall refund distribution estimate:
According to Piper Sandler estimates, the $91 billion in total tax relief expected in 2026 breaks down as:
This implies approximately 20 million additional filers will see refunds larger than they would expect based on standard deduction increases alone.
How to Optimize Withholding for Emergency Fund Planning
Strategic management of federal tax withholding can enhance your emergency fund building capacity through larger refunds or smaller payments.
Current situation (2025):
Because the IRS has not updated withholding tables, most employees are overwithholding. This means you’re likely having more federal income tax deducted from your paycheck than necessary.
Two strategies to address this:
Strategy 1: Maintain current withholding for maximum refund (conservative)
Leave withholding unchanged throughout 2025 to accumulate all available refunds. This results in receiving a larger lump sum in February/March 2026.
Advantage: Automatic money accumulation for emergency funds without discipline
Disadvantage: Reduced cash flow throughout 2025 when it could be invested or used for emergency fund building
Emergency fund impact: If an employee overwitholds $2,000, that becomes a $2,000 emergency fund contribution in March 2026
Strategy 2: Adjust W-4 form to increase take-home pay (aggressive)
File a revised Form W-4 (“Employee’s Withholding Certificate”) with your employer to reduce withholding. This puts more money in your paycheck each week or biweekly.
How to adjust withholding:
- Determine refund you’d otherwise receive (use online calculators)
- Divide by number of pay periods remaining in 2025
- Request that amount removed from withholding via Form W-4
- File revised Form W-4 immediately
Advantage: Increased cash flow throughout 2025 for emergency fund building month-by-month
Disadvantage: Requires discipline to actually save the additional take-home pay; many employees spend increased cash
Emergency fund impact: If employees receive $150 additional in biweekly paycheck ($38.46 weekly), consistent savings yields approximately $2,000 by year-end
Recommended hybrid approach:
Increase withholding adjustment by 50%, receiving some additional cash monthly while still building refund through-out the year. This balances cash flow improvement with the automatic savings benefit of a refund.
Expected 2026 Tax Refund Timeline and Amounts
Refund timing, amounts, and considerations for emergency fund planning:
Filing season 2026 dates:
February 1, 2026: IRS begins accepting electronic returns (delayed 1-2 weeks vs. typical mid-January)
February-March 2026: Peak refund period; expect processing delays if filing later
April 15, 2026: Tax filing deadline (extended deadline usually June 15)
Expected refund amounts:
According to Piper Sandler, the 2026 refund season will be “unprecedented,” with:
- $59 billion in additional refunds (beyond historical average)
- Average refund increases of $500-$1,000 for many filers
- Combined tax relief: $91 billion including both refunds and reduced liabilities
2026 average refund projection:
Previous average (2025): $2,939
Expected average with OBBBA provisions: approximately $3,400-$3,500
Processing timeline expectations:
With record refund volumes anticipated, expect slower processing. Average e-file processing:
- Standard refund: 21 days
- With complications: 45-60 days
- 2026 expectation: Possibly 30-45 days due to volume
Direct deposit vs. mail:
Emergency fund timing consideration:
Anticipating your 2026 refund for emergency fund planning requires honesty about your situation. Consider:
- Filing electronically and requesting direct deposit for fastest refund access
- Setting aside 80% of anticipated refund for emergency fund; using 20% for discretionary spending
- Adjusting emergency fund calculations based on likely refund amount
FAQs: 2026 Tax Refunds and One Big Beautiful Bill Act
How much bigger will my 2026 tax refund be?
It depends on your income and situation. Average increases range from $150 (under $34,000 income) to $286,440+ (over $5.18 million). Middle-income filers typically see $500-$1,500 increases.
Why is the IRS giving bigger refunds?
The IRS hasn’t updated withholding tables for 2025 tax law changes. Many people are overpaying throughout 2025 and receiving the overpayment as a refund in early 2026.
Do I need to do anything to get the bigger refund?
Just file your 2025 tax return normally in early 2026. The IRS will automatically calculate the refund based on actual tax law. No additional action needed.
When will I receive my 2026 refund?
E-filed returns with direct deposit typically receive refunds within 7-21 days. Paper filers wait 21+ days. 2026 may be slower due to volume.
Should I adjust my W-4 to get more money now instead of a refund?
It’s a personal choice. More take-home pay now allows monthly emergency fund building. A larger refund provides automatic savings discipline.
Which new deductions apply to me?
That depends on your situation:
Tips deduction: Service industry workers with $25,000+ in annual tips
Overtime deduction: Those with $12,500+ in overtime pay annually
Car loan deduction: Financed new vehicle purchases in 2025+
Senior deduction: Age 65+ ($6,000 additional deduction)
How does the expanded SALT deduction help me?
If you live in a high-tax state and own property, the $40,000 cap (vs. previous $10,000) could save $7,500+ annually. If you live in a low-tax state, benefit is minimal.
Will these tax changes expire?
How does this affect my emergency fund planning?
Larger refunds provide a substantial emergency fund boost in early 2026. Consider allocating 80%+ of refunds to emergency savings rather than spending.
Conclusion: Maximizing Your 2026 Refund for Emergency Fund Building
The One Big Beautiful Bill Act creates a historic refund opportunity in early 2026, with millions of Americans receiving $500-$1,000 additional refunds due to IRS withholding table delays. For emergency fund planners, this presents a critical strategic moment: these larger-than-expected refunds can substantially accelerate emergency fund targets when received in February/March 2026.
The combination of retroactive tax law changes (new deductions), permanently extended tax brackets, increased standard deductions, and expanded SALT relief creates a one-time windfall for 2026 refunds that won’t repeat in subsequent years. After 2026, refunds should normalize to historical levels, making this exceptional refund season a unique opportunity for emergency fund building.