Millions Could Get a ‘Gigantic’ Tax Refund Next Year, According to the IRS

Millions of Americans are bracing for what could be one of the most significant shifts in their personal finances in years. As we approach the next tax filing season in early 2026, the Internal Revenue Service (IRS) and independent financial analysts are signaling a potential windfall for taxpayers. Driven by a combination of aggressive inflation adjustments and the implementation of the “One, Big, Beautiful Bill” (OBBB) Act, tax refunds are projected to climb significantly. For many families, this isn’t just a minor increase; it’s a “gigantic” adjustment that could see the average refund jump by as much as $1,000 compared to previous years.¹

The Perfect Storm: Inflation Adjustments and New Legislation

The primary engine behind these larger checks is a dual-force update to the tax code. Historically, the IRS adjusts tax brackets and standard deductions to keep pace with inflation, a process known as “indexing.”² However, the 2025 tax year (the returns for which are filed in 2026) is unique because of the OBBB Act.³ This legislation hasn’t just tweaked the numbers—it has overhauled key deductions and credits.⁴ Because employers’ withholding tables generally haven’t been updated to reflect these retroactive cuts, many workers have been overpaying their taxes throughout the year.⁵ When they finally file their 1040 forms, that overpayment returns to them in the form of a much larger refund.⁶

Sky-High Increases in the Standard Deduction

One of the most direct ways the IRS is putting money back into pockets is through a massive hike in the standard deduction.⁷ For the 2025 tax year, the amount of income you can shield from federal taxes has reached record levels. Married couples filing jointly will see their standard deduction climb to $31,500.⁸ This shift is designed to ensure that as wages rise with inflation, taxpayers aren’t pushed into higher tax brackets—a phenomenon often called “bracket creep.” By raising the floor of taxable income, the government effectively lowers the total tax liability for the vast majority of households.

New Deductions: Tips, Overtime, and Auto Loans

Beyond the standard deduction, the OBBB Act introduced several “game-changer” provisions that specifically target middle-income workers. For the first time, a significant portion of income earned through tips and overtime is becoming tax-exempt under certain conditions.⁹ For instance, eligible workers can deduct up to $25,000 in tip income and up to $12,500 in overtime pay ($25,000 for married couples).¹⁰ Additionally, a new deduction for car loan interest on personal vehicles has been introduced, allowing for a write-off of up to $10,000.¹¹ These specific deductions are expected to create a massive “refund gap” for those who haven’t adjusted their weekly withholdings.

The SALT Cap Relief and Senior Bonuses

High-tax state residents and seniors are also in line for substantial relief.¹² The controversial cap on State and Local Tax (SALT) deductions, which was previously stuck at $10,000, has been dramatically lifted to $40,000 for those earning under $500,000.¹³ This allows homeowners in states like New York, California, and New Jersey to deduct much more of their property and state income taxes. Furthermore, a new “bonus” deduction for seniors aged 65 and older has been implemented, offering an additional $6,000 for individuals or $12,000 for married couples.¹⁴ These targeted measures are a major reason why analysts expect total refund payouts to surge by nearly $90 billion this season.

Impact on Families and the Earned Income Tax Credit

Families with children are seeing a double-barrel benefit.¹⁵ The Child Tax Credit (CTC) has been increased to $2,200 per child, providing a dollar-for-dollar reduction in tax debt.¹⁶ Simultaneously, the Earned Income Tax Credit (EITC)—a vital lifeline for low-to-moderate-income workers—has been adjusted upward.¹⁷ For a family with three or more children, the maximum EITC now exceeds $8,000. When combined with the broader tax bracket shifts, these credits ensure that many families will not only owe zero tax but will receive thousands of dollars back through refundable portions of these credits.

Preparing for a Smooth Filing Experience

While the news of “gigantic” refunds is exciting, the IRS warns that accuracy is more important than ever. With new schedules like the “Schedule 1-A” being introduced to claim these OBBB-related deductions, the complexity of tax returns has increased.¹⁸ Taxpayers are encouraged to gather documentation for their car loans, overtime hours, and tipped income early. Utilizing electronic filing and choosing direct deposit remains the fastest way to secure these funds, with most refunds still expected to be processed within 21 days of a successful, error-free submission.

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FAQs

Q1 Why are tax refunds expected to be so much higher this year?

The increase is due to a combination of high inflation adjustments to tax brackets and new legislation (the OBBB Act) that created large deductions for overtime, tips, and car loan interest that were not reflected in most people’s monthly paychecks.20

Q2 Who qualifies for the new $6,000 senior deduction?

Taxpayers who are 65 or older by the end of the tax year may qualify for this bonus deduction, provided their modified adjusted gross income (MAGI) is below $75,000 for individuals or $150,000 for married couples.21

Q3 When will I receive my 2025 tax refund?

The IRS typically begins accepting returns in late January. If you file electronically and opt for direct deposit, you can generally expect your refund within 21 days, though those claiming the EITC or CTC may experience slight delays due to mandatory fraud checks.22

Disclaimer

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