Millions of American families can expect bigger tax refunds in 2026 — a welcome boost for working households squeezed by rising costs. The Internal Revenue Service (IRS) confirmed that significant adjustments to deductions and credits will result in record refunds next year, thanks to new provisions in President Donald Trump’s One Big Beautiful Bill Act (OBBBA), signed into law in July 2025.
The reforms aim to ease financial pressure on middle- and low-income families by increasing the standard deduction, expanding major tax credits, and introducing new deductions that reward workers, parents, and retirees.
What’s Behind the Bigger Refunds
The OBBBA builds upon the 2017 Tax Cuts and Jobs Act, with changes designed to combat inflation and stimulate post-pandemic recovery. The IRS detailed the new guidelines in its October 9, 2025, revenue procedure, outlining how taxpayers will see tangible improvements when filing in early 2026.
Among the biggest updates:
- Standard deduction increases to $16,100 for single filers and heads of household, and $32,200 for married couples filing jointly — a 5.5% rise from 2025.
- Earned Income Tax Credit (EITC) maximum value rises to $8,200 for families with three or more children.
- Child Tax Credit (CTC) grows to $2,300 per eligible child, with phase-out limits raised to include more middle-class households.
“This adjustment could reduce the average household’s tax liability by roughly $500,” said Sarah Thompson, senior analyst at the Tax Policy Center. “Because most taxpayers claim the standard deduction, this increase directly translates to higher refunds.”
New Deductions Target Everyday Costs
Beyond inflation indexing, the OBBBA adds targeted deductions through 2028 aimed at practical relief for working families:
- Vehicle Loan Interest Deduction: Taxpayers can deduct up to $2,000 annually for interest on qualifying vehicle loans (with cars rated at least 25 miles per gallon).
- Senior Medical Expense Credit: Retirees may claim up to $1,500 for unreimbursed medical costs, such as physical therapy or mobility aids.
With car prices up nearly 20% since 2023, analysts say the vehicle deduction could help millions manage rising transportation costs — particularly those in rural areas or commuting long distances for work.
Inflation-Proofed Refunds: What It Means for You
The combined effect of these changes could inject $50 billion into the U.S. economy through 2026 tax refunds, according to a preliminary analysis by JPMorgan Chase. While not a direct stimulus program, the structure mirrors pandemic-era relief checks in its scale and speed of impact.
Families claiming both the expanded EITC and CTC could see refunds climb by several hundred dollars — or even thousands — compared to prior years.
The IRS also urges taxpayers to update their Form W-4 withholdings to align with the new rates and avoid surprises next spring. “Adjusting your withholdings early can help maximize your refund or prevent underpayment,” the agency advises on its website.
Not Everyone Wins Equally
While the increases benefit most middle- and working-class households, some higher-income earners will see limited gains. OBBBA provisions phase out for families earning over $150,000 in adjusted gross income.
Critics, including Senator Elizabeth Warren, argue the law disproportionately benefits car owners and manufacturers. “This package reads more like an auto industry subsidy than a working-family plan,” Warren said.
Still, public opinion remains largely favorable. A Gallup poll released this week found 62% of Americans support the tax updates, citing their direct impact on affordability and family budgets.
What to Expect in 2026
For most taxpayers, refunds will begin arriving via direct deposit as early as February 2026, particularly for those claiming refundable credits like the EITC.
Key changes to remember:
- Higher deductions and credits across all income-driven categories.
- Expanded eligibility for middle-income families.
- Tax-free status of most credits remains through 2026 under the American Rescue Plan provisions.
As household costs continue to rise, this tax relief package may provide a modest but meaningful cushion for millions of families navigating an expensive economy.
