Americans Face Bigger Tax Refunds in 2026 — But Higher Tariffs Could Cancel the Benefit

 

A wave of larger-than-usual tax refunds is on the horizon for Americans in 2026, according to David Kelly, chief strategist at JPMorgan Asset Management. The refunds stem from retroactive provisions in President Donald Trump’s One Big Beautiful Bill Act (OBBBA), effective January 1, 2025. However, the IRS will not adjust withholding rates, meaning taxpayers will overpay this year and receive bigger refunds next year. Kelly estimates the average refund could reach $3,743 — up $557 from the previous year.

While the numbers may sound appealing, the benefits are unevenly distributed. Most OBBBA tax breaks come in the form of deductions, meaning higher-income taxpayers gain more. Older Americans, high-income earners, and certain tipped employees stand to benefit, while those with moderate incomes may see little impact. Even the expanded Child Tax Credit, increased to $2,200 and indexed for inflation, is unlikely to offset the disparities.

Meanwhile, tariffs imposed by the Trump administration are quietly eroding the financial gains for ordinary Americans. With an effective tariff rate currently around 8% — potentially rising to 14.5% — households could pay an average of $2,400 extra for goods, disproportionately affecting low- and middle-income families who spend a larger share of their income on essentials.

Kelly warns the combination of bigger refunds and ongoing tariffs could create a feedback loop similar to the Covid-era economic surge: “You give an American consumer a stimulus check, they will spend it… You are going to get a second round of inflation.” Inflation, currently around 3%, could rise to 3.5% by year-end.

The reality is that while high-income Americans may celebrate larger refunds, many taxpayers will feel the squeeze from rising prices and a government shutdown looming since October 1. The uncertainty surrounding short-term funding bills and possible reversals of health and social benefits cuts only compounds the problem.

Financial experts suggest planning ahead. Investors can hedge against inflation and market volatility by exploring alternatives like gold IRAs, real estate, and diversified investment platforms. For those with higher incomes, zero-AUM-fee advisory services like Range can help preserve wealth and optimize investment strategies.

Ultimately, the incoming tax refunds are not a universal boon. For most Americans, rising tariffs and uneven benefits mean that any extra cash in 2026 could be offset by higher living costs and economic instability. The Trump administration’s policies may deliver headlines about bigger refunds, but the broader consequences on household budgets and inflation remain largely ignored.