A great deal of interest has been sparked among financially savvy taxpayers regarding a projection by Treasury Secretary Scott Bessent that “gigantic” refund checks will go out to millions of Americans in 2026. At the root of this windfall is the One Big Beautiful Bill Act (OBBBA), which President Donald Trump signed into law last July 2025 to retroactively enact drastic tax cuts as if the year had begun with those lowered rates. As a result of the IRS’s failure to revise withholding schedules accordingly, millions of taxpayers have been continuing to remit pre-OBBBA tax rates to the IRS.
1. Size of the Refund Surge
Bessent, who is also the acting IRS commissioner, estimated on the All-In Podcast that households could realize between 1,000 and 2,000 USD per employee and that Tax Foundation estimated that OBBBA lowered individual taxes between 144 billion and 2025, with up to 100 billion possibly going back into taxpayer pockets in the form of increased tax refunds, with average tax refunds estimated to increase between 300 and 1,000 USD per household, with some exceeding this amount.
2. Major Retroactive Tax Cuts Fueling Refunds
The seven key sections of the OBBBA upon which the return boost relies are:
- A $200 increase in the maximum credit under the child tax credit to $2,200 per child.
- Standard deduction allowances rise to $15,750 for single-filers and $31,500 for joint-filers in 2025.
- Limit on State and Local Taxes (SALT) deduction is now lifted to $40,000 for more taxpayers with AGI
- New $6,000 deduction for seniors, phasing out over $75,000 AGI ($150,000 for joint
- Up to $10,000 deduction for auto loan interest.
- Deduction for up to $12,500 of overtime pay ($25,000 for joint filers).
3. Planning Ahead for Filing Season
Filers expecting substantial refunds need to start preparing their returns early. With retroactive changes, it is important for the taxpayer to have qualifying requirements documented. For instance, for the auto loan interest deduction credit, the vehicle’s Vehicle Identification Number, along with information relating to the car’s final assembly in the U.S., is required. Additionally, the Verification of Tip Income or the employer’s records or the filer’s documentation for overtime income is also required for the tip income deduction credit.
4. Child Tax Credit Changes and Its Effects
The OBBBA permanently raised the child tax credit and indexed it for inflation, benefiting an estimated 23.8 million children. But it also tightens the requirement to have a Social Security number, possibly disqualifying around 500,000 children who would have qualified before. Those who benefit most from the increase are those from middle and higher tax brackets, with low-income families benefiting little as phase-in levels remain unchanged.
5. The Practical Effects of the SALT Deduction
State residents who pay high taxes will feel relieved with the temporary boost in the cap on the SALT deduction, but income-based phase-ins might dampen gains for high-income earners. To illustrate, a joint filer with $550,000 of AGI in 2025 will limit their $40,000 deduction to $25,000. However, there will always be a floor of $10,000 for the deduction regardless of income.
6. Charitable Contribution Adjustments
For taxpayers who do not itemize deductions starting from tax year 2026, there is now an above-the-line deduction worth $1,000 for charitable contributions. For those who itemize, the new floor prevents deductions for contributions below 0.5% of AGI, while there is also a limitation that de-emphasizes deductions for those who are in the highest rate bracket.
7. Handling the Windfall Effectively
Financial gurus would say that big refunds are actually a chance for strategic money management on one’s part. Some gestures include paying back high-interest debts, establishing an urgent fund, or putting money into retirement investments. A big chunk of money from tax refunds can also act as an extra source against the cost of living influenced by inflation.
8. Processing Withholdings in Future Years
Bessent believes taxpayers should change their withholding in 2026, incorporating greater take-home pay along with refunds from the previous year to increase real wages. By doing so, they take advantage of benefits of tax cuts, which should be enjoyed throughout the year and not just through a refund.
9. Income-Based Strategies
Those households close to the phaseout levels for deductions such as tips, overtime, or SALT might consider strategies concerning their AGI. Timing the recognition of income, deferment of bonuses, or ramping up contributions to qualified plans may help these households keep the deductibility. Pass-through business owners would derive advantages from the unchanged PTET rules, adding SALT tax savings.
10. Preparing for Complexity
As the Tax Foundation warns, “The U.S. tax code is complex, not simple. Unfortunately, the OBBBA further complicates the tax return-filing process.” Additional schedules like Schedule 1-A related to tips, overtime deductions, and auto loan interest deductions will further complicate the return-filing requirements. It is advisable that the taxpayers seek the help of a professional.
The coming filing season also promises a record amount of refunds, but the economic benefit will lie in understanding and making use of the provisions offered by the OBBBA. By preparing paperwork, making adjustments to withholdings, and bringing plans into compliance with the new law provisions, taxpayers can benefit from maximum refunds and tax efficiency.
