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Trump’s legislation included several provisions that impact 2025 taxes. These included a bigger standard deduction; a more generous maximum child tax credit; a higher limit for the state and local tax deduction; a new $6,000 tax break for seniors; and new deductions for auto loan interest, tip income and overtime pay, among others.
Those provisions reduced individual income taxes by $144 billion in 2025, according to estimates from the Tax Foundation.
“Overall, we’re expecting these changes to increase refunds by 15% to 20% on average,” Heather Berger, a U.S. economist with Morgan Stanley, said on the company’s “Thoughts on the Market” podcast on Jan. 2.
In 2025, the average refund for individual filers was $3,052 through Oct. 17, according to the IRS. The agency issued about 102 million refunds through Oct. 17, with about 60% of payments sent through March 28.
Bigger refunds could boost spending
For 2026, bigger refunds could temporarily increase consumer spending, according to some experts.
“Our expectation is it would be a positive for consumption,” National Economic Council Director Kevin Hassett told CNBC’s “Squawk on the Street” on Jan. 9.
But spending behavior varies by earnings, with higher-income households more likely to save refunds, according to an Oct. 31 note from Piper Sandler. Typically, households making between $30,000 to $60,000 spend about 30% of refunds on discretionary purchases, compared to 15% for households earning $100,000 or more, the note said.
How bigger tax refunds could impact inflation
Some analysts have said that bigger tax refunds in early 2026 could boost consumer demand and inflation pressure.
“It could easily be inflationary,” said Jonathan Parker, an economist at the Massachusetts Institute of Technology, who has researched consumer spending during past stimulus payment cycles.
The stimulus checks issued during the Covid-19 pandemic were “certainly correlated” with higher inflation, Parker told CNBC. Issued in 2020 and 2021, these payments were a “contributing factor” to the size of the subsequent inflation boom, he said.
The consumer price index rose 9.1% from the previous year in June 2022, which marked the fastest pace for inflation since November 1981.
Former Treasury Secretary Janet Yellen in January 2025 said stimulus spending may have contributed “a little bit” to inflation. But there were also “huge supply chain problems,” which caused shortages on key goods, she said.
When asked how bigger tax refunds in 2026 could impact prices and demand, Hassett told “Squawk on the Street”: “We’re not really worried about the inflationary effects of that because we [have] got so much supply coming online again.”
