The tax relief enacted in the One Big Beautiful Bill Act (OBBBA) signed into law by President Trump will provide Americans with the largest tax refund season in U.S. history.
The Big Beautiful Bill has major tax provisions that took effect retroactively on January 1, 2025. This includes no tax on tips or overtime, a senior bonus deduction, a permanently increased standard deduction, and a stronger Child Tax Credit.
The provisions together provide $191 billion in new tax relief in 2026 which would be the largest expansion of working-class tax relief since the 2017 Tax Cuts and Jobs Act (TCJA), which this legislation also makes permanent.
Big Refunds are Coming
On August 7 the Internal Revenue Service (IRS) announced that it would not adjust W-2 or 1099 withholding guidance for the 2025 tax year and that the new withholding forms will not take effect until 2026.
Between the tax cuts themselves and the withholding guidance, taxpayers will see a historic surge in refunds as Americans file taxes in 2026.
According to data from the Join Committee on Taxation (JCT), Americans will receive back an additional $91 billion in tax refunds and keep an additional $30 billion in their paychecks from reduced 2026 withholding, for a total of $121 billion in relief for American families. The average taxpayer could see an extra $1,000 added to their refunds compared to last year.
An analysis conducted by JP Morgan found that the number of tax filers receiving a tax refund could climb to 110 million with an average refund of $3,743.
As noted by Ways and Means Committee Chairman Jason Smith:
“Millions of Americans will see the working families tax cuts put more money in their pockets when they file taxes this coming spring. In our tax relief bill, Republicans wasted no time and ensured that we cut taxes on income earned this year. Americans voted to have more money in their wallet, and that’s exactly what President Trump and Republicans delivered,” said Ways and Means Committee Chairman Jason Smith (MO-08). “Tax refunds are a big deal for a lot of American families. It covers home repairs, health care, or summer vacations; all of which became completely unaffordable under Joe Biden. Thanks to the working families tax cuts, more Americans will have greater financial security and ability to provide for their future.”
Boost to Economic Growth and Consumer Spending
These historic tax refunds will be a boost to both consumer spending and economic growth in 2026.
As JP Morgan notes in its analysis:
“Looking at the overall economic impact, if we assume that 80% of these extra refunds are spent, this amounts to roughly 0.27% of GDP. If this money were spent evenly in the first six months of 2026, it could boost annualized real GDP growth by over 0.5% in the first quarter. If we add to this the impact of lower withholding that should finally kick in at the start of 2026, it could add 0.8% to real GDP growth in the first quarter. “
Notable Provisions
Regarding No Tax on Tips: All tipped workers qualify regardless of whether they work as a traditional employee or as an independent contractor. And all tipped workers qualify regardless of filing status — whether they take the standard deduction or itemize deductions, the No Tax on Tips provision applies. All tipped workers qualify, regardless of whether they receive tips directly from customers or from a tip pooling arrangement.
For taxpayers who own a small business that pays through the individual tax system, another driver of the higher refunds is the permanent expensing provisions. Purchases of new equipment can be deducted immediately which reduces the tax bill and increases refunds.
The Big Beautiful Bill ensures that Americans are going to keep more of what they earn, delivering real relief for millions of tax filers.
