Understanding the OBBBA Effect: Why 2026 Tax Refunds Are Trending Upward

We are a few weeks into the 2026 tax filing season, and the initial data from the IRS paints an interesting picture. Taxpayers across the country have been closely watching for the impact of recent legislative changes, and the numbers are starting to tell the story. Currently, the average refund sits at $2,476, up from $2,169 at this time in 2025. While a 14.2% increase—roughly $300—is a welcome improvement for household cash flow, it hasn't quite hit the $1,000 surge that some policymakers originally forecasted.

However, it is crucial to remember that we are still in the preliminary phase of the season. As more complex returns are processed, these averages will likely shift. What we can say with certainty is that the trend is positive, driven largely by the provisions within the One Big Beautiful Bill Act (OBBBA).

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New Deductions Driving the Numbers

The OBBBA introduced a suite of targeted deductions and credits designed to lower tax liability for specific groups. If you haven't filed yet, here are the key changes we are reviewing for your return:

  • The Overtime Premium Pay Deduction: This provision effectively targets the "half" of your "time-and-a-half" pay under the Fair Labor Standards Act. We can deduct up to $12,500 for single filers and $25,000 for married couples filing jointly.

  • The Tips Tax Deduction: For clients in service industries—covering nearly 70 designated occupations—up to $25,000 of qualified tips are now deductible. Note that this requires a joint return for married taxpayers and begins to phase out at a Modified Adjusted Gross Income (MAGI) of $150,000 ($300,000 for joint filers).

  • Auto Loan Interest Deduction: If you purchased a new, U.S.-assembled vehicle for personal use after 2024, the interest on that loan (up to $10,000) is deductible. This applies whether you itemize or take the standard deduction, though income limits apply (phasing out starting at $100,000 MAGI for singles).

  • Enhanced Standard and Senior Deductions: The standard deduction has been raised to $31,500 for married joint filers and $15,750 for singles. Additionally, there is a new $6,000 "Senior Bonus" for taxpayers aged 65+, which phases out for higher earners.

  • Expanded Child Tax Credit: Families will see the Child Tax Credit increase to $2,200 per child. This benefit remains subject to income thresholds, phasing out for single filers earning over $200,000 and joint filers over $400,000.

  • Increased SALT Cap: A significant change for homeowners in high-tax states is the adjustment of the State and Local Tax (SALT) deduction limit. The cap has moved from $10,000 to $40,000, providing substantial relief for itemizers, though this cap begins to decrease for those with a MAGI over $500,000.

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The "Hidden" Factors Boosting Refunds

Beyond the new legislation, there are structural reasons why refund checks are larger this year. Because many tax cuts were enacted mid-year or retroactively, the IRS did not overhaul the withholding tax tables immediately. Consequently, many employees had more tax withheld from their paychecks than necessary throughout 2025, resulting in a larger refund now.

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Additionally, significant inflation adjustments to tax brackets have helped mitigate "bracket creep," ensuring that cost-of-living raises didn't inadvertently push taxpayers into higher tax rates. We also saw changes to the Adoption Tax Credit, with up to $5,000 now becoming refundable, meaning it can trigger a refund even if you owe zero tax.

Navigating IRS Challenges in 2026

While the refund news is positive, the administrative side requires patience. The IRS is currently operating with a workforce reduction of nearly 25% since January 2025 and is managing a backlog of returns. We have already observed a slight dip in processing speeds (down roughly 3.1%).

If you are hesitant to file because the laws seem complex or you are worried about processing delays, please reach out to us. Our firm is fully up-to-speed on every nuance of the OBBBA. We are here to ensure you capture every new deduction available to you, from overtime pay to the increased SALT limit. Let's schedule a time to finalize your return and secure the refund you are owed.

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If any of these topics caught your attention, please contact to start the conversation!
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