Why Millions of Taxpayers Could Get Bigger Refunds Next Year

Multiple groups of taxpayers are on track to receive larger refunds in 2026 due to midyear tax policy changes in the One Big Beautiful Bill Act, according to new research from Oxford Economics.

Several key tax changes in the GOP tax law, which was signed in July, were retroactive and apply for the entirety of the 2025 tax year. That means many taxpayers were likely overwithholding in the first half of the year — and beyond, unless they made adjustments.

The 940-page tax bill included signature policies like “no tax on tips,” “no tax on overtime,” and the “senior bonus.” Those tax changes are effective for the 2025 to 2028 tax years: dates that align with President Donald Trump’s second term in office. The law also increased caps on the state and local tax (SALT) deduction, and it created a new car loan interest deduction.

The research briefing found that many taxpayers have not changed their withholding, which determines how much federal income tax is automatically withheld from each paycheck.

The people potentially affected include older Americans eligible for the new “senior bonus” deduction of up to $6,000, tipped workers and overtime workers eligible for new deductions, and new car buyers who can deduct interest, among others.

In theory, taxpayers could have reduced their withholding after the law was passed to take advantage of the benefits immediately. However, “there is no evidence that this is occurring on a significant scale,” Nancy Vanden Houten, lead economist at Oxford Economics, said in a release.

The IRS has yet to update its publicly available withholding tables to reflect the changes in the tax law. Because employers depend on these tables to calculate withholdings, most are not yet accounting for the bill’s cuts.

The website for the IRS withholding estimator, a tool for taxpayers, includes a notice that the info is not current. Elsewhere on the agency’s site, the IRS suggests “reviewing your withholding manually or consulting a tax professional” if you meet any of the following criteria:

• You receive tips or overtime pay
• You bought a new car and paid interest
• You paid over $10,000 in state and local taxes
• You are age 65 or older

The IRS is working on “new guidance and updated forms” for 2026, according to an Aug. 7 news release. If you want to adjust your withholding now, you may have the option to submit a new W-4 at work. Americans can also change their tax withholding from pension distributions, IRA distributions and other income streams.

However, as taxpayers wait for the IRS to update its forms and tools, that process may simply be too complicated for most people.

As a result, many taxpayers will get bigger refunds this spring. That’s partially by design: The Trump administration and the lawmakers who worked on this bill have celebrated the fact that it’ll put money into the pockets of American taxpayers this spring.

“We’ve cut their taxes at levels that nobody’s ever seen. I mean, no tax on tips, no tax on Social Security, no tax on overtime,” Trump said during a cabinet meeting earlier in the month. “It’s been a great thing for a lot of people.”

But from a personal finance angle, getting a bigger tax refund is not necessarily ideal.

While a check from the IRS can be a nice bonus, a large tax refund also indicates that a taxpayer withheld more than they needed to. Financial professionals often advise against withholding extra money, reminding consumers that a tax refund means you’ve essentially been giving an interest-free loan to the government.

Last filing season, the average tax refund was $2,939, according to the IRS, and the average refund was higher ($3,252) for the 2022 filing season. Whether the average refund will swell again next year remains to be seen.