Many Americans depend on their annual tax refund as the single biggest lump sum they receive all year. In 2026, that check may be even larger. A new analysis from Piper Sandler projects that the average federal tax refund could surge by roughly $1,000 per filer, delivering a meaningful boost to household finances at a time when many families are still juggling high living costs.
The firm estimates that the typical refund could reach about $4,151 per filer. That would represent a sharp increase over the $3,151 average refund taxpayers received during the 2025 filing season, according to the latest IRS data.
If the projections hold, the first months of 2026 could deliver some of the biggest refund totals the IRS has ever processed.
What Is Driving the Bigger Refunds
The expected jump in refunds is tied to changes from the major tax and spending package signed by President Trump in July. The legislation introduced a wide range of tax breaks and, importantly, made many of those changes retroactive to the 2025 tax year.
Key provisions include:
- The elimination of federal taxes on certain types of overtime and tipped income
- A sharp increase in the cap on the state and local tax (SALT) deduction, which rises from $10,000 to $40,000
- Adjustments to other itemized deductions that broaden eligibility for middle and upper-middle-income filers
Because these changes apply retroactively to 2025, taxpayers did not adjust their withholding throughout the year. That means the IRS likely withheld too much for many households, and those overpayments will be refunded in 2026.
“When people go to file, they’ll be surprised by really, really large refunds,” said Don Schneider, deputy head of U.S. policy at Piper Sandler and one of the report’s authors. “In a typical year, we might have about $270 billion in tax refunds, and it’ll be that plus another $90 billion.”
Why Withholding Matters This Year
Most Americans do not regularly update their W-4 forms even when major tax changes occur. Schneider notes that many workers would find it difficult to calculate the precise effect of retroactive tax cuts anyway, which leaves withholding on autopilot.
As a result, taxpayers could see refunds about one-third higher than usual next spring. Piper Sandler estimates that this could translate into roughly an additional $1,000 per filer on average.
“It could be one of the largest tax refund seasons ever,” Schneider added.
Who Will Benefit the Most
The projected refund windfall will not be evenly distributed. Piper Sandler’s analysis suggests that much of the benefit will flow to middle-income and upper-middle-income households earning between $60,000 and $400,000 per year.
This aligns with other early evaluations of the law. The Tax Policy Center reported in July that Americans earning more than $217,000 annually are likely to receive $6 of every $10 created by the new tax breaks.
There are two reasons for this:
- Higher-income taxpayers are more likely to benefit from itemized deductions, particularly the expanded SALT deduction.
- Many tax benefits phase out at very high incomes, reducing the impact for households above certain thresholds.
For example, the newly expanded $40,000 SALT deduction begins to phase out for filers with more than $500,000 in annual income, limiting how much relief high earners can claim.
Why Lower-Income Households See Less Impact
Although the law offers broad tax cuts, some provisions provide little benefit to lower-income households.
The SALT deduction cap is a clear example. Households must itemize to use it, and the IRS standard deduction for 2025 is $15,750 for single filers and $31,500 for married couples. Lower-income families typically do not exceed those thresholds in state and local tax payments, so they do not benefit from the increased cap.
Other components of the law, such as relief for specific types of income, may provide some help, but analysts generally agree that the largest refund increases will occur higher up the income distribution.
“This isn’t going to the very bottom of the distribution. It isn’t going to the very top of the distribution either,” Schneider said.
What This Means for Households in 2026
If Piper Sandler’s projections hold, early 2026 could bring an unusually strong cash infusion for millions of Americans. For many families, a $1,000 increase in their refund could help with:
- Paying off credit card balances
- Covering rising insurance premiums or property taxes
- Building an emergency fund
- Funding IRA or investment accounts
- Managing continued inflation in essentials like food, rent, and utilities
Financial planners often encourage taxpayers to avoid relying too heavily on refunds as a budgeting tool, but there is no doubt these larger payments could offer meaningful short-term financial relief.
Why This Matters for Markets
A large wave of refunds can act as a temporary economic stimulant. Historically, bigger tax refunds have boosted:
- Consumer spending
- Retail sales
- Credit card paydowns
- Deposit growth at major banks
If households receive an extra $90 billion in refunds, as Piper Sandler suggests, that additional liquidity could help support consumer-driven sectors in Q1 and Q2 of 2026.
This could be especially important for retailers, consumer discretionary stocks, travel companies, and banks tied to deposit flows.
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