Understanding the Impact of Trump’s Multitrillion-Dollar Legislation on Tax Refunds
The tax landscape has undergone significant changes with the enactment of Trump’s multitrillion-dollar legislation in July, which includes several retroactive tax changes for 2025 that will affect returns filed in 2026. One of the key aspects of this legislation is its impact on tax refunds, as the IRS did not update withholding tables for employers, resulting in 2025 employee withholdings being based on taxes owed before Trump’s cuts.
According to Garrett Watson, director of policy analysis at the Tax Foundation, a nonprofit think tank, this discrepancy is expected to “pretty dramatically increase refunds on average during the [2026] tax filing season compared to prior years.” As of December 26, the average refund for individual returns was $3,167 during the 2025 filing season, up slightly from $3,138 in 2024, according to the latest IRS data.
Who Can Expect a Bigger Tax Refund in 2026
Millions of Americans could see a bigger refund or smaller tax bill in 2026, with a few tax breaks impacting a “significant portion” of filers, according to Andrew Lautz, director of tax policy for the Bipartisan Policy Center, a nonprofit think tank. The increased standard deduction to $15,750 for single filers and $31,500 for married couples filing jointly, up from $15,000 and $30,000, respectively, before the change, will affect most filers.
Additionally, many families could benefit from a higher child tax credit, which increased to $2,200 from $2,000 for families eligible to claim the full value. The new $6,000 senior deduction for individuals age 65 and up could also impact many older Americans from 2025 through 2028, with the full deduction available to those with up to $75,000 in modified adjusted gross income ($150,000 for married couples filing jointly).
Larger Tax Cuts for Specific Groups of Americans
Trump’s legislation also introduced temporary tax breaks for smaller groups of filers, which could provide “much larger” cuts, according to Lautz. These include deductions on tip and overtime income, a tax break on auto loan interest, and a higher limit for the deduction for state and local taxes, known as SALT. Approximately 6 million workers report tipped wages, and about 6% of workers reported overtime pay in 2024, according to the Peter G. Peterson Foundation, an economic organization.
The increased SALT deduction limit to $40,000, up from $10,000 in 2024, is expected to result in the biggest increases in refund size, according to Lautz. However, it’s essential to note that you can only claim the SALT deduction if you itemize tax breaks, and roughly 90% of filers don’t itemize, according to the latest IRS data.
Smart Tip for Readers
To maximize your potential tax refund, review your tax withholding and adjust it if necessary to avoid overpayment or underpayment of taxes throughout the year. You can learn more about the impact of Trump’s legislation on tax refunds and get the latest updates on tax changes by visiting the IRS website or consulting a tax professional.
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