Why Tax Refunds Will Probably Be Bigger in 2026

The One Big Beautiful Bill Act, signed into law in July, is set to bring significant tax changes that will impact taxpayers in 2026. Research from Oxford Economics suggests that these changes could result in larger refunds for multiple groups of taxpayers. Key provisions of the GOP tax law include policies such as “no tax on tips,” “no tax on overtime,” and the “senior bonus,” which will be in effect from 2025 to 2028. Additionally, the law increased caps on the state and local tax deduction and introduced a new car loan interest deduction.

According to Oxford Economics, these changes could potentially lead to up to $50 billion in refunds for eligible taxpayers in 2026. However, many taxpayers have not adjusted their withholding to take advantage of these benefits. The IRS has not yet updated its withholding tables to reflect the new tax law, leaving employers unaware of the changes when calculating withholdings.

Specific groups that may benefit from the tax changes include older Americans eligible for the senior bonus deduction, tipped and overtime workers eligible for new deductions, and new car buyers who can deduct interest. Despite the potential for larger refunds, many taxpayers have not taken steps to adjust their withholding.

The IRS is working on new guidance and updated forms for 2026, but the process may be too complex for most individuals. As a result, many taxpayers are likely to receive larger refunds in the upcoming tax season. While a sizable tax refund may seem like a windfall, it actually indicates that the taxpayer has overwithheld throughout the year, essentially providing the government with an interest-free loan.

Financial experts advise against overwithholding and recommend adjusting withholding to ensure a more accurate tax payment throughout the year. Despite the potential for larger refunds under the new tax law, taxpayers should be mindful of their withholding to avoid unnecessary overpayments to the government.