The Internal Revenue Service (IRS) has confirmed that major rules affecting tax returns are being rewritten in response to the One Big Beautiful Bill Act (OBBBA), the sweeping tax overhaul signed into law in July 2025. These changes aren’t just technical updates; they have real-world consequences for how your 2026 tax refund is calculated and how much you might receive when you file in early 2027.
From expanded deductions and credits to new reporting requirements, the IRS is preparing updated guidance for taxpayers, employers, and tax professionals, and refunds could rise significantly for many households because of provisions that retroactively affect tax years already earned.
“Millions of taxpayers will feel the impact of these changes not just in lowered taxes going forward, but in the amount of refund they receive once they file,” said Scott Bessent, Treasury Secretary, who has publicly discussed expectations for high refund volumes in 2026.
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How the Refund Rules Are Changing Under OBBBA?
The One Big Beautiful Bill Act includes multiple tax policy shifts that change the way deductions and taxable income are calculated, particularly for the 2025 and 2026 tax years. These changes will be reflected on your 2026 tax return, which you’ll file in early 2027.
1. Expanded Standard Deduction and New Deductions
The OBBBA raises the standard deduction to unprecedented levels:
- $16,100 for single taxpayers
- $32,200 for married couples filing jointly
- $24,150 for heads of households in 2026.
It also includes new, significant deductions:
- A $6,000 senior deduction for taxpayers 65 and older (in addition to the regular standard deduction).
- A “no tax on tips” deduction of up to $25,000 per year for qualified tipped workers.
These tax breaks reduce your taxable income and can boost your refund or reduce your liability.
2. Retroactive Tax Cuts Trigger Refund Surges
Some provisions of the OBBBA apply retroactively to income earned in 2025, but the IRS did not immediately change withholding tables or payroll reporting rules for 2025. That mismatch means many workers paid more tax than required throughout the year and will see that overpayment returned as a refund when they file their 2026 tax return.
Treasury officials estimate that $100 billion to $150 billion in refunds could be issued in early 2026, and many working-class households could receive refunds between $1,000 and $2,000 or more.
Overview of OBBBA Tax Changes Affecting Refunds
| Causes over-withholding of refunds | Effect on Refunds | Who It Helps Most |
|---|---|---|
| Increased standard deduction | Lowers taxable income, increases potential refund | All taxpayers |
| Senior deduction | Reduces taxable income further for elderly | Taxpayers 65+ |
| No tax on tips | Allows large annual deduction | Tipped workers and service employees |
| No tax on overtime & car loan interest | New deductions possible | Hourly workers, auto buyers |
| Retroactive tax cuts | Causes over-withholding refunds | Most taxpayers who didn’t adjust withholding |
Refund boosts can also come from expanded credits like child tax credits and adoption credits added or enhanced under the new law.
Why Refunds Could Feel “Huge” in Early 2026?
Economists and tax analysts are describing the 2026 refund season as potentially one of the largest on record, driven by a combination of retroactive tax relief and unchanged withholding during 2025.
According to projections:
- Taxpayers will file under new deduction rules but with old withholding tables, creating mismatches that result in overpaid taxes.
- Many households will receive refund increases of $1,000–$2,000 or even more, depending on income, filing status, and eligibility for new tax breaks.
These delays in IRS adjustments have created a situation where your refund could effectively function as a retroactive tax cut, returning funds you were legally able to keep but never had the chance to adjust for during the year.
There’s leadership optimism that the 2026 refund season will inject liquidity into households across the U.S., especially those who experienced over-withholding in 2025.
What You Need to Know Before Filing?
Plan for Larger Refunds but New Reporting
- New deductions and credits may require amended tax forms or additional schedules.
- Employers will begin providing updated reporting formats for 2026 that reflect OBBBA changes.
- The IRS is preparing updated forms and instructions to claim these benefits efficiently.
Adjust Withholdings If You Don’t Want a Big Refund
Receiving a large refund may feel good, but it means you essentially gave the government an interest-free loan. Taxpayers who want to avoid over-withholding can adjust their payroll withholdings during 2026 to reflect the new law.
Watch For Higher Penalties on Erroneous Refund Claims
The One Big Beautiful Bill Act also expands penalties for erroneous refund claims including employment tax refunds, meaning taxpayers should be careful to calculate changes accurately. A 20% penalty may apply to parts of a claim deemed excessive.
Final Thoughts
The IRS is actively rewriting the rules to implement the One Big Beautiful Bill Act’s provisions and your next tax refund could look very different than in prior years. New deductions, retroactive tax cuts, and delayed withholding adjustments all mean that many taxpayers may receive larger refunds when they file their 2026 tax returns in early 2027.
But experts emphasize planning: whether you aim to maximize your refund or fine-tune your withholdings to keep more of your earnings throughout the year, understanding these changes before filing will help you make smarter financial decisions.
Frequently Asked Questions
Why are refunds expected to be higher in 2026?
Because OBBBA changes were retroactive to 2025 but IRS withholding wasn’t updated, many taxpayers paid more tax than necessary, resulting in larger refunds when they file.
What new deductions affect refunds?
New deductions include the senior deduction, no tax on tips, and others that can drastically lower taxable income.
Will the IRS update withholding tables?
Yes, updated guidance and withholding instructions are expected for the 2026 tax year to align with new OBBBA provisions.
Do these changes affect all taxpayers?
Most taxpayers will see some effect, but workers with tips, overtime, or large deductions will likely notice the biggest refund changes.
Is a huge refund guaranteed?
Refund amounts vary widely. While many may see significant refunds, it depends on tax situation, income, filing status, and eligibility for new deductions.
