President Donald Trump promised Americans big tax refunds next year. Many filers — particularly those who could most use the financial boost — may soon be disappointed.
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“Your sort of typical W-2 worker with no kids will see very little change year-over-year,” said Adam Michel, director of tax policy studies at the libertarian Cato Institute. He estimates slightly more than half of taxpayers fall into that group.
That disconnect between Trump’s public promises and the reality for many Americans threatens to create a political liability for congressional Republicans ahead of midterm elections focused squarely on voters’ concerns about affordability. Trump has called affordability concerns a “hoax,” but economic data suggests otherwise.
Consumer sentiment is hovering near its lowest level on record, and Americans’ views of their personal finances are the worst since 2009. Meantime, wage gains have slowed to a crawl and job prospects have dimmed thanks to a slowdown in the labor market.
Wealthy taxpayers in high-tax states like California, New York and New Jersey are the biggest winners, as are workers who collect tips or overtime, and seniors. But most taxpayers will likely see only a modest boost that will do little to assuage their pocketbook concerns.
About a quarter of taxpayers will claim a boosted child tax credit, which will amount to at most an extra $200 per child, Michel estimated.
Fewer taxpayers fall into special categories due to receive larger breaks. About 13% will qualify for the new senior deduction for taxpayers aged 65 and older, and a combined 12% will deduct either tips or overtime wages, he said.
Uneven distribution
Forecasts of a bump in the average tax refund coming in the new year mask the uneven distribution of new tax breaks in Trump’s signature legislation, Michel said.
On average, taxpayers will see refunds just shy of $1,000 higher than previous years, Michel said. The average tax refund has hovered around $3,000 the last few years.
White House Press Secretary Karoline Leavitt touted the average numbers at a briefing just last week
“Refunds could be about one-third larger than usual,” she declared. “So remember that the next time Democrats try to talk about affordability.”
A higher standard deduction will mean tax savings that are anywhere from less than $100 to a few hundred dollars higher than in past years, depending on a taxpayer’s income, said Andrew Lautz, director of tax policy for the Bipartisan Policy Center. The higher standard deduction is available to all taxpayers who don’t take itemized deductions.
But those who qualify for a handful of new and enhanced tax breaks are the big winners and their savings are driving up estimates of average savings. Those who can, for instance, take full advantage of the new $40,000 cap on state and local tax deductions — up from a prior limit of $10,000 — could shave thousands of dollars off a taxpayer’s bill.
“There will be substantially larger refunds for taxpayers who can enjoy those benefits — the tips, overtime, SALT deduction, auto loan interest deduction,” Lautz said. “We expect that to be a smaller slice of the population.”
Extensions
Much of the new tax law’s $3.4 trillion price tag was devoted to extending expiring tax breaks enacted in 2017.
Because many of the new tax breaks are deductions, which lower taxable income, and not credits, which lower tax liability directly, higher-income Americans stand to gain more. A deduction stretches further for wealthier taxpayers in higher tax brackets facing higher tax rates.
“One dollar of deduction is more valuable to someone who is richer than someone who is not making as much money,” said Brendan Novak, a senior policy analyst with the Penn Wharton Budget Model.
Trump’s campaign promises of no tax on tips, overtime and auto-loan interest were achieved by establishing new deductions. That means the new tax breaks will translate into bigger savings for higher income earners — up to a point, since they also include income restrictions.
As a result, those in line to benefit the most from new tax savings next year tend to be wealthier. Analysis by the Penn Wharton Budget Model found that people making in the top fifth by income are likely to realize the biggest tax savings.
Those making between $376,000 and just below $960,000 a year are in line to get the biggest average tax cut, at $2,585. Comparatively, someone in the middle fifth of annual income, making between $49,000 and $90,000, would see their after-tax income rise by $650 on average, thanks to the new tax cuts, according to the group’s analysis.
Taxpayers are more likely to collect their tax savings through a refund next year than usual though, thanks to a decision by the administration to leave outdated payroll withholding guidance in place, Lautz said.
Many of the new Trump tax cuts were retroactive to the start of this year, but rather than tell employers to withhold less from paychecks to account for lower tax bills, the IRS left older, higher withholding guidance in place. As a result, most workers will realize their tax savings through a refund when they file early next year, months before the midterm congressional elections.
Tax cuts would normally be spread out over a worker’s paychecks throughout the year through lower tax withholding.
“But because IRS has not updated withholding tables for 2025, people will get that as a lump sum when they file their taxes,” Lautz said.
