Tax season has a way of surprising people who assumed they already knew what to expect. For years, millions of Americans have counted on a refund check arriving in early spring, treating it almost like a bonus. That assumption is worth examining more carefully now, because the landscape around withholding, credits, and new legislation has shifted considerably since 2022, and not every taxpayer is positioned the same way.
The story of the 2026 filing season is actually two stories running at the same time. Some filers are seeing notably larger refunds, while others, particularly those with gig income, outdated withholding, or changed life circumstances, are facing unexpected bills. Understanding which side of that divide you fall on starts with knowing what actually changed.
The Refund Picture Has Shifted Dramatically Since the Pandemic Era
The contrast between pandemic-era tax seasons and the years that followed is striking. The main reason refunds shrank starting in tax year 2022 was that temporary pandemic relief dropped out of the tax code, including the expanded Child Tax Credit and earned income tax credit, both of which had been boosted to help families through the economic disruption. That shift hit lower-income households hardest.
The American Rescue Plan had temporarily increased the Child Tax Credit from $2,000 to $3,600 for qualifying children under age 6, and $3,000 for other qualifying children under age 18, with the credit made fully refundable. When that expired, many families found their refund had dropped by hundreds of dollars overnight. Many Americans got a shock when the expiration of pandemic-era federal benefits resulted in their receiving a smaller tax refund check.
New Legislation Changed the Playing Field Again for 2025 Returns
When filers file their returns in 2026, many will see larger refunds than in recent years, due to the One Big Beautiful Bill Act, which reduced individual income taxes for 2025 by an estimated $129 billion. The legislation introduced several new deductions, some of which had never existed before in the tax code.
Seniors aged 65 and older may be eligible to claim an additional deduction of up to $6,000, on top of the higher standard deduction already available for seniors, while tipped workers may be eligible to deduct up to $25,000 for qualified tips. Individuals may also deduct up to $12,500 (or $25,000 for joint filers) for qualified overtime, and up to $10,000 in qualified passenger vehicle loan interest. These are genuinely new provisions, not adjustments of existing ones.
The Withholding Gap Is Why Some Filers Are Getting Surprise Refunds
Because the tax law changes were finalized in the middle of 2025, most employers continued withholding taxes based on earlier rules throughout the year, meaning many workers had more tax withheld from their paychecks than was required under the new law. This created an unusual over-withholding situation on a wide scale.
As a result of the IRS not adjusting withholding tables promptly after the law passed, workers generally continued to withhold more taxes than the new law required. Instead of gradually receiving the benefit through higher take-home pay during the year, most taxpayers will receive it all at once when they file their returns. The Treasury has projected that tax refunds will increase by an average of $1,000 this year per household.
Early Filing Data Confirms the Trend, But Not Uniformly
The average tax refund is about 11% higher so far this season, compared with the same period in 2025, with the average refund amount for individual filers reaching $3,462 as of April 3, up from $3,116 a year ago. That is a meaningful year-over-year jump by any measure.
Private-sector economic analysis suggests the One Big Beautiful Bill Act will result in up to $100 billion in higher refunds in 2026 overall, with average refunds up between $300 and $1,000 compared to a typical year, though refund size will vary significantly depending on individual circumstances. Lower-income filers with little to no tax liability do not benefit, while the very highest-income taxpayers are ineligible for most of the new tax cuts due to income limits.
Who Is Most Likely to Owe Money Instead
Despite expectations of larger refunds, not every taxpayer will benefit equally. People whose income increased significantly, those working multiple jobs, or those who never updated their W-4 after a major life change are particularly exposed. The IRS has consistently identified incorrect withholding as one of the top reasons taxpayers end up owing.
Owing additional tax or receiving a larger-than-expected refund is often a signal that withholding is off. Withholding that closely matches anticipated tax liability can help prevent unexpected tax bills and potential underpayment penalties, as well as help taxpayers avoid over-withholding and increase take-home pay throughout the year. The challenge is that most people never think about their W-4 once they’ve filed it.
Gig and Freelance Workers Face a Particularly Steep Learning Curve
Unlike traditional W-2 employees, gig workers don’t have taxes automatically withheld from their paychecks, so they must track their own earnings. This creates a built-in risk that many new independent workers don’t fully appreciate until they file their first return and see a large balance due.
Gig economy workers who expect to owe taxes on their income are required to make quarterly estimated tax payments to the IRS. Failing to do so can result in having to pay those taxes when filing the individual income tax return, plus an underpayment penalty. The IRS charges an underpayment penalty currently running at 8% annualized interest, adjusted each quarter. That adds up faster than most people expect.
The 90% Rule and Why Missing It Is Costly
The IRS provides “safe harbor” provisions to avoid penalties. Meeting any of these conditions means a taxpayer won’t face underpayment penalties even if they end up owing additional tax: paying 90% of the tax shown on their current return, paying 100% of the prior year’s tax liability (110% for higher-income taxpayers), or owing less than $1,000 in additional tax after credits and withholding.
The key point is that the penalty applies even if a taxpayer pays everything owed by April 15. The IRS required payment quarterly. Paying the full amount in April just means also paying the penalty for the months that went unpaid. This catches many self-employed filers completely off guard, especially in their first year of independent work. Setting aside 25 to 30% of self-employment income is generally recommended to cover tax obligations.
What You Can Actually Do About It Before Next Year
The One Big Beautiful Bill Act contains several new or enhanced deductions, many available beginning in 2025. Employees who want to account for these deductions in the income tax withheld from their remaining paychecks must submit a new 2025 Form W-4 to their employer. It is a simple step that most people skip.
The IRS has not yet updated its withholding estimator to incorporate all tax changes that went into effect in 2025. If a taxpayer does make a change to their withholding, it should be done by submitting a new W-4 form to their employer, and any adjustment probably should not be drastic. If you updated your withholding for 2025, the IRS encourages taxpayers to recheck and update their withholding again at the beginning of 2026.
The Bigger Picture Behind Your Refund Number
The IRS received over 163 million tax returns as of October 2025, reflecting the enormous scale at which even small policy changes ripple through the system. When credits expand, contract, or disappear, the effects show up quickly and broadly across millions of households. The refund you receive, or the bill you owe, is less a reflection of how well you planned and more a measure of how well current law aligns with how your income was collected throughout the year.
A refund can be viewed in two ways: as an interest-free loan you made to the government, which is simply paying back principal, or as forced savings that you might not have set aside had you received the money in small installments throughout the year. Neither perspective is wrong. What matters is knowing which one describes your situation.
The real takeaway from the 2026 tax season is not about getting a bigger or smaller check. It’s about understanding why that number came out the way it did, and whether your withholding or estimated payments are positioned correctly going forward. Taxes reward preparation quietly, and they penalize inattention just as quietly.
