President Donald Trump told Americans they should expect big tax refunds next year, but the people who rely on steady W-2 wages may want to lower their hopes.
Many workers will see almost no change, even though they make up more than half of all taxpayers. Adam Michel from the Cato Institute said a “typical W-2 worker with no kids will see very little change year-over-year,” and that sets the tone for what is coming.
The gap between the promises and the numbers lands right as Republicans head into midterm season with affordability hanging over everything. Trump keeps calling affordability fears a “hoax,” but the data does not match that line.
Consumer sentiment is near record lows, personal finance confidence is at its worst since 2009, wage growth slowed to almost nothing, and hiring has cooled across the board.
Wealthier taxpayers walk away with most of the advantages under the new rules. High-income filers in states like California, New York, and New Jersey get the biggest lift, along with seniors and workers who earn tips or overtime.
Most people will only get a small bump, nowhere close to fixing the strain they feel. About a quarter of taxpayers will get a higher child tax credit, worth up to $200 per child. Around 13% will qualify for the new senior deduction for those 65 and older, and roughly 12% will be able to deduct tips or overtime.
Report shows bigger refunds landing for higher earners
Forecasts show average refunds going up, but Michel said those averages hide how uneven the gains really are. He expects the average refund to rise by just under $1,000, compared to the usual $3,000 taxpayers have received in recent years.
White House Press Secretary Karoline Leavitt leaned on that number last week, saying “refunds could be about one-third larger than usual” and telling reporters to “remember that the next time Democrats try to talk about affordability.”
But averages are being pulled upward by a small group of people who qualify for new and expanded deductions.
Andrew Lautz from the Bipartisan Policy Center said the higher standard deduction will save most filers somewhere between under $100 and a few hundred dollars. But those who qualify for special breaks get much more.
Anyone able to use the new $40,000 cap on state and local tax deductions, a huge jump from the old $10,000 limit, can cut thousands from their tax bill.
Lautz said, “There will be substantially larger refunds for taxpayers who can enjoy those benefits — the tips, overtime, SALT deduction, auto loan interest deduction,” although he noted that group is a small slice of the population.
Much of the $3.4 trillion cost of the new tax law came from extending breaks first passed in 2017. Because the new benefits work through deductions instead of credits, richer households gain more.
Brendan Novak from the Penn Wharton Budget Model said “one dollar of deduction is more valuable to someone who is richer” since higher earners face higher tax rates. Trump delivered his campaign pledge to remove taxes on tips, overtime, and auto-loan interest by creating deductions for them. That structure means higher earners save more, though some limits still apply.
The Penn Wharton Budget Model found that people in the top fifth of income will take in the largest savings. Those who make between $376,000 and just under $960,000 are lined up for an average cut of $2,585.
Middle-income workers making between $49,000 and $90,000 get an estimated $650 increase in after-tax income. Most taxpayers will feel those differences when filing early next year, because Lautz said the IRS kept old withholding tables in place.
That means workers did not see tax savings in their paychecks throughout the year. The tax cuts were retroactive, but employers were never told to adjust withholding. So the refunds will come as one lump amount, landing months before the midterm elections.
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