The “K-shaped” economy will affect your 2026 tax refund. Here’s how.

The impact of the “K-shaped” economy on U.S. consumers is manifesting in various unexpected ways, including their tax refunds. Recent analysis from investment firm Principal Asset Management reveals that higher-income Americans are poised to receive larger tax refunds compared to other households, thanks to the changes introduced in the “big, beautiful bill” act.

Signed into law by President Trump in July of 2025, the act extended 2017 tax cuts and introduced new tax breaks, resulting in a disparity in tax refunds among different income brackets. The U.S. economy has been characterized as K-shaped, indicating a widening gap between wealthier Americans and lower-income workers due to factors like a booming stock market and escalating home prices.

Principal Asset Management’s findings suggest that this divergence will be evident in this year’s tax refunds, with overall increases skewed towards upper-middle-income households. According to market strategist Christian Floro, the average taxpayer can expect a boost of over $700 in their refund, bringing the typical refund to around $3,800. However, the lion’s share of these benefits will go to higher-income households.

The top 1% of earners will not see as substantial an increase in their tax refunds as the top 5% or 10%, primarily because of income thresholds that phase out certain tax deductions for top earners. For example, the SALT deduction cap has been raised to $40,000, but it begins to phase out for taxpayers earning over $500,000, excluding the top 1% from claiming it.

While the top 1% can expect an average refund increase of $908 this year, households in the top 5% are projected to receive an additional $3,748 from the IRS. On the other end of the spectrum, lower earners making $33,000 or less will see an average increase of $18 in their refund checks, exacerbating the existing wealth gap.

Floro’s analysis suggests that the disparity in 2026 tax refunds could further widen the “K-shaped” divergence among consumers, particularly impacting lower-income individuals facing affordability challenges amidst inflation and a softening labor market. However, some lower-earning households may benefit from new tax breaks, such as deductions for tips and overtime, as highlighted in a report by Bank of America Institute.

In conclusion, the unequal distribution of tax refunds in 2026 underscores the economic challenges faced by different income groups in the U.S. The ongoing trend of wealthier Americans benefiting more from tax policies and economic gains highlights the need for targeted measures to address income inequality and support lower-income households.