Tax season is officially underway in the U.S., with returns now being accepted and refunds expected to accelerate by mid‑February. This year, many Americans are likely to receive notably larger refunds—potentially around 20% more than in 2025—offering a meaningful boost to household finances, select industries and, to a certain degree, the broader economy.
The increase stems primarily from the One Big Beautiful Bill Act (OBBBA), which included many consumer-focused tax cuts retroactive in 2025. Among these were deductions for overtime and tips, a new senior deduction, deductibility of car-loan interest, an increased State and Local Tax (SALT) cap and enhanced child tax credit.
According to Morgan Stanley Research’s calculations, these changes could lift total individual tax refunds this year by about $55 billion to a total of $350 billion, with the average refund rising roughly to $3,500, up from $2,940 in 2025.
Middle- to High-Income Consumers to Benefit the Most
Deductions for tips and overtime are likely to benefit mainly middle-income consumers, while the increase in the SALT cap should favor mostly high-income consumers and homeowners. The senior deduction could further support older middle-income consumers.
“These groups are most exposed to the benefits from the new OBBBA provisions,” says Morgan Stanley U.S. Economist Heather Berger. “For the lowest-income cohort, we expect limited gains, since many of these consumers already do not pay federal income taxes.”
Limited Economic Impact in the Short Term
Typically, 30% to 45% of refunds are received by taxpayers by the end of February. Those figures tend to rise to 60% to 70% by late March.
Morgan Stanley Research estimates that this year’s outsized refunds could fuel a 4.1% increase in real disposable income in the first quarter—especially notable after stagnation in the second half of 2025.
“While refunds will boost spending this year, we do not expect an immediate jump,” Berger says. “The most common uses of tax refunds are saving and paying off debts, neither of which count as consumption.”
Additionally, American households should continue face other pressures—such as tariff inflation and the expiration of the Affordable Care Act credits—which are still likely to weigh on spending in the first quarter.
“As we progress throughout the year, though, we’re anticipating steady growth in real consumer spending as the labor market stabilizes, inflation decelerates and lagged effects of easier monetary policy flow through,” Berger adds.
Delinquencies Poised to Decline
Refund season could also provide relief for consumer credit. Because many Americans use refunds to reduce debt, higher‑than‑usual refund levels should improve the performance of consumer loans, leading to lower delinquencies in consumer finance and Consumer Asset-Backed Securities (ABS).
“Consumer credit quality has already improved, and high refunds should provide further support,” says Carolyn Campbell, Morgan Stanley’s Asset-Backed Securities Strategist. “In auto ABS, where delinquencies are near all-time highs, higher refunds should help performance course correct, particularly in subprime.”
The Impact for Different Sectors
Studies show that, historically, spending on durable goods such as appliances and furniture benefits the most from higher refunds. But Morgan Stanley’s AlphaWise Consumer Pulse surveys point to additional categories where consumers expect to spend their refunds, including everyday purchases, vacations, clothing and home improvement.
Among retailers, hardliners—or sellers of non-apparel and often boxed merchandise, such as electronics, appliances and housewares—are most likely to increase sales. Some apparel and footwear retailers should also lead performance.
Restaurant demand could also have a significant boost, with casual dining being the clearest beneficiary from the potential increase in discretionary spending.
In the same spirit, airlines, hotels, cruise lines, timeshare companies and casinos may also see higher bookings as consumers channel additional cash into experiences.
