The BareStory
Taxpayers may see significantly larger refunds during the 2026 filing season due to legislative provisions enacted under the Trump administration affecting the 2025 tax year. According to the Tax Foundation, these changes—which include a larger standard deduction, increased child tax credits, and new deductions for overtime pay and auto loan interest—reduced individual income taxes by an estimated $144 billion. An economist with Morgan Stanley estimated that refunds could rise by an average of 15% to 20%, noting that IRS withholding tables were not updated to reflect the new breaks, delaying the financial benefit until filing.
The IRS is scheduled to begin processing individual returns on January 26. National Economic Council Director Kevin Hassett stated that he expects the refunds to positively impact consumption. However, views on the economic fallout differ. An MIT economist warned that the injection of funds could drive inflation, citing similar trends following 2020 and 2021 stimulus checks. Conversely, Hassett dismissed inflationary concerns, pointing to increased economic supply. Meanwhile, a 2025 survey by the National Retail Federation found that 82% of recipients plan to use the funds for savings or debt repayment rather than discretionary purchases.
While many filers may benefit, borrowers in default on federal student loans face the potential seizure of their refunds. The Department of Education resumed full collections in April following a five-year pandemic pause, granting the government authority to garnish refunds—including earned income and child tax credits—from those who have missed at least nine payments. An advocacy group, Protect Borrowers, estimates that roughly 9 million student loan holders are currently in default.
Consumer experts advise borrowers to check their status with the Department of Education or the Treasury Offset Program before filing. If a borrower is on the garnishment list, advocates recommend resolving the default through loan consolidation or rehabilitation prior to submitting a tax return, a process that may require filing an extension.
How it may affect me
As a U.S. reader:
You may receive a refund 15% to 20% larger on average this season due to new deductions and credits that were not previously adjusted in paycheck withholdings.
If you are among the 9 million borrowers in default on federal student loans, the government may now garnish your entire refund, including child tax and earned income credits.
Borrowers in default should consider consolidating or rehabilitating loans before filing, potentially requiring an extension to ensure their refund is not seized by the Department of Education.
You may face higher prices if the cash influx drives inflation, though experts disagree on this risk given that most recipients plan to use funds for savings or debt.
