The 2026 tax filing season is progressing with fewer returns filed compared to last year, but taxpayers who have already received their tax refunds are seeing a notable increase. According to the latest IRS statistics through February 20, 2026, average tax refunds have climbed to $3,804, representing a 10.2% increase over the previous year, even as the total number of returns processed has declined by 2.4%.
The IRS has received 41.9 million individual tax returns so far this season, down 1.9% from the same period in 2025. However, the higher average tax refund amount is attracting attention from taxpayers and tax professionals alike as they navigate significant changes introduced by recent tax legislation.
Why Tax Refunds Are Higher This Year
The increase in tax refunds stems largely from changes under the One Big Beautiful Bill Act (OBBBA), according to tax experts. The legislation increased the standard deduction, raised the state and local tax deduction cap, and introduced new temporary deductions that have affected how much taxpayers owe.
A key factor driving larger refunds is that the IRS did not update withholding tables in 2025 despite these tax law changes. As a result, many taxpayers overpaid throughout the year, leading to bigger-than-expected refunds when they filed their returns.
New Senior Tax Deduction Creates Confusion
One provision generating significant discussion is a new $6,000 deduction available to taxpayers age 65 and older, commonly referred to as “No Tax on Social Security.” The deduction is available whether taxpayers itemize or take the standard deduction, and married couples over 65 can claim up to $12,000 combined.
However, tax professionals warn that the nickname is misleading. The provision is not an exclusion of Social Security benefits from taxation but rather an additional deduction that reduces taxable income. Additionally, the deduction is age-based rather than benefits-based, meaning taxpayers under 65 who receive Social Security do not qualify, while those over 65 who have not yet claimed Social Security benefits do qualify.
The deduction does not change the existing formula for determining whether Social Security benefits are taxable. If benefits were not taxable before the new law, they remain non-taxable, and if they were partially taxable, they may still be subject to tax.
IRS Staffing Cuts Complicate Filing Season
The current tax season is also affected by a reduction in IRS staffing and budget cuts. Tax practitioners report that some issues from 2023 are only now being resolved, creating significant backlogs. Meanwhile, improved data matching and technology make it easier for the IRS to identify discrepancies on returns.
This combination means mistakes are more likely to trigger notices, and resolving those notices could take considerably longer than in previous years. Tax advisors are urging taxpayers to double-check their filings and ensure accuracy before submission to avoid potential delays.
At the same time, the IRS is working to eliminate paper processing, expand electronic filing options, and rely more heavily on automation and artificial intelligence. However, funding cuts and staff reductions may slow modernization efforts, particularly if employees needed to build and maintain new systems are among those leaving the agency.
SALT Deduction Cap Temporarily Increased
Another significant change under OBBBA affects the state and local tax deduction. The SALT deduction cap has been temporarily raised to $40,000 for most filers in 2025, up from the previous $10,000 limit, with inflation adjustments through 2029.
The expanded cap phases out at higher income levels, and the benefit will revert to $10,000 in 2030 unless Congress takes further action. This temporary increase provides relief for taxpayers in high-tax states but adds complexity to tax planning for the coming years.
Tax Filing Extensions Remain Available
Taxpayers who need additional time to prepare accurate returns can file for an automatic extension. Extensions provide more time to file but not more time to pay any taxes owed, so estimated payments should still be submitted by the April 15 deadline to avoid penalties and interest.
The IRS continues to update guidance as the filing season progresses, and further clarification on new deductions and changes may be issued in the coming weeks.
