Your tax refund could be much bigger this year. Here's how that could actually be bad for the economy.

Andrew Keshner

Americans could see an extra $100 billion in tax refunds this year, according to a Bank of America economist

Tax refunds are expected to be bigger this year, with Americans projected to get $1,000 more on average because of new tax breaks and deductions President Donald Trump signed into law last July.

It's the first day of tax season, and Americans are hoping the Internal Revenue Service sends them a big refund. Investors and economists share those hopes.

Although tax-filing season is a major annual financial event, the 2026 season starting Monday, Jan. 26, carries extra significance.

It's the first tax season under President Donald Trump's new tax law, which created an array of new deductions and expanded existing tax breaks. Refunds for individual taxpayers could be up to $1,000 larger than they were last year, according to several estimates.

That's money consumers could pour into the economy, giving them additional purchasing power for increasingly expensive goods and services. As the single largest payment many households receive all year, refunds could also help people pay off their rising debt burdens. Another possibility is that people will use their refund money to build rainy-day funds, at a time when savings rates are drooping. Or they could invest it in the stock market.

Will these larger refunds materialize? And how will people use the money if they get it?

The answers will be important, according to Aditya Bhave, senior U.S. economist at BofA Securities. Approximately $100 billion in extra tax-refund money could be coming to consumers, he said.

In a recent note, Bhave slightly raised his projections for the U.S. economy's 2026 first-half growth and reduced those for the back half, based on the potential stimulus from tax season. Total refund payments could surpass $400 billion in 2026, he wrote.

Bhave will now be watching the Treasury Department, IRS and internal bank data to see how the higher refund projections pan out. The tax-refund money may prod along both 2026 GDP growth and inflation rates, he noted.

"This is a huge amount of fiscal stimulus that's about to hit the economy," said Ed Mills, Washington policy analyst at Raymond James. "This is a fine line between boosting economic growth and boosting inflation."

January also launches the 2026 midterm election push. The early effects of the new tax breaks in the Republican tax law could lift consumers' spirits and their financial outlooks - but that remains to be seen, said Mills.

For all the hoopla over the One Big Beautiful Bill Act, Mills has noticed that many people remain unfamiliar with all its provisions and what they could mean for their finances.

"The only way they'll learn what's in that bill is when they sit down and do their 2025 tax returns," Mills said.

One thing is certain, he added: "A lot is riding on this refund season, both politically and economically, for Republicans and the United States."

Who's spending their refunds?

The IRS is expecting to handle 164 million tax returns in the filing season that runs through April 15. The first signs of refund-powered consumer spending could show up soon, because February is historically the biggest month for refund payouts, Bhave said.

"That anticipation of higher refunds has become a key factor for many bullish assertions among investors," said Steve Sosnick, chief strategist at Interactive Brokers. Yet it still may be tricky to determine what consumers will do with the refund money in hand, he noted.

"On balance, this does sound like a net positive," Sosnick said. "The question is how much is priced in" for investors trying to work out which companies and sectors will benefit from a boost in consumer spending due to tax refunds.

Lower-income households typically spend their refunds at an outsize rate, particularly for discretionary purchases such as travel and leisure, according to Bank of America's 2025 data.

The next question is what middle- and upper-income households will do with their refunds, said Sosnick. Wealthier households have less need to spend their refund money, while middle-income families may find some mix of spending and saving.

The big winners of the tax law include households that take the state and local tax (SALT) deduction, which has increased to a maximum of $40,000 this year. These taxpayers will likely be wealthier and live in more expensive areas.

Other observers aren't expecting the influx of refund money to trigger a surge in spending. When people make big spending decisions, it usually depends on their confidence in the job market, said Garrett Melson, a portfolio strategist with Natixis Investment Managers Solutions.

Many Americans - even well-off ones - are presently unsure about their job security, and it's been a rough time for job seekers. In December, a record-low amount of people thought they could find another job in three months if they lost their job, according to the Federal Reserve Bank of New York.

"There's not a lot of confidence," Melson said, adding that even if half the money is saved and half is spent, that will not spur long-lasting economic growth.

Mills, however, said he believes the new tax law is going to goose spending. The new tax breaks and the quadrupled SALT deduction are only available to people under certain income limits, he noted. That lowers the chances that refund money will flow to upper-income households and then sit unspent in a savings account or a brokerage account, he explained.

Take the "senior bonus" tax deduction - a new, straightforward deduction for taxpayers ages 65 and up. It's only for people who have incomes under $75,000, or $150,000 for a married couple.

For a senior citizen on a fixed income, the chance that larger refund "gets spent is extremely high," Mills said.

Joy Wiltermuth contributed.

-Andrew Keshner

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