Tax Refunds 2026: K-Shaped Income Impact Seen in $700 Average Increase

The K-shaped income distribution is reshaping 2026 U.S. tax refunds. The One Big Beautiful Bill Act, signed July 2025, extends 2017 tax cuts and expands the state and local tax (SALT) deduction cap to $40,000 but phases out benefits for higher earners. As a result, refunds are expected to rise overall by over $700, pushing the average to about $3,800. Top 1% households see an average gain of $908, while those in the top 5% anticipate $3,748 more. Lowest earners, making $33,000 or less, could receive an average of $18 more. The disparity is likely to widen economic divides amid inflation, a softening labor market, and limited participation in wealth gains.