Experts say President Trump’s layoffs could affect IRS and tax refunds
As the IRS faces possible layoffs from the Trump administration, tax experts are advising taxpayers to file early to avoid delays.
Thanks to the tax and spending package President Donald Trump passed in July, Americans, especially the wealthy, will either get more tax refunds or be charged less when they file their taxes in 2026, according to one economist.
Nancy Vanden Houten, chief economist at the University of Oxford, said in a report this week that total tax savings for taxpayers could reach an additional $50 billion because the IRS has not retroactively updated its withholding schedules to account for the new provisions until early 2025.
He said the only way for taxpayers to benefit from the 2025 retroactive provisions, such as the additional senior citizen deduction, tax exemptions on tips and overtime pay, and expanded child tax credit, is to reduce their tax liability through withholding and estimated tax payments. But even with the law passed in July, employers still use the higher tax rate to calculate employee withholding, or the amount of federal income tax to withhold from an employee’s paycheck. The IRS updates the tables annually to account for inflation and changes in tax law.
With so many Americans struggling under the weight of high prices for everything from beef to insurance premiums, the tax savings may be welcome news, but Vanden Houten warns that most of the benefits will go to the wealthy.
“The benefits of the new retroactive tax cuts disproportionately benefit taxpayers in the top income quintile,” he said. A previous analysis of the new tax law by the Tax Policy Center, a nonpartisan think tank, found that on average all income groups benefited from the tax cuts, but higher-income households benefited the most.
What would an additional $50 billion in tax savings mean for Americans?
The $50 billion increase in tax refunds would be about a 17% increase over last year’s total of about $275 billion, according to IRS data. This is especially important given that the increase in refunds from 2024 to 2025 was only 2%.
The average refund in 2025 was $2,939. A 17% increase is nearly $500 more, but it’s important to note that not all $50 billion in additional tax savings will be refunded.
“Taxpayers may simply choose to pay even less tax as they approach the final payment deadline in April next year,” Vanden Houten said.
And, of course, “taxpayers can reduce withholding on their own, and some taxpayers may do so,” she said. But “there is no evidence that this is happening on a large scale.”
Why do tax cuts primarily help wealthy Americans?
Analysts say an increase in state and local tax (SALT) deductions will be the biggest boost for wealthy Americans.
President Trump’s plan would temporarily raise the SALT deduction cap to $40,000 for some households that itemize their taxes. The law also allows some business owners, such as partnerships and sole proprietors, to take advantage of state loopholes to avoid the SALT deduction cap entirely, the Tax Policy Center said. Wealthy people tend to exceed the upper limit when it comes to itemized state and local taxes.
Will bigger tax cuts boost the economy?
People usually spend at least some if not all of their refund. In May 2005, a survey commissioned by TaxSlayer and conducted by Talker Research found that 64% of 2,000 taxpayers had already used up their tax refund or were planning to do so soon.
Vanden Houten predicted that the economic boost would arrive in the first half of 2026, but cautioned that “there is not much evidence that the delay in 2025 tax adjustments is having a negative impact on consumer spending at this point, so the impact may be minor.”
“Consumers may be (now) spending in anticipation of a larger refund or lower tax bill next year,” he said.
Additionally, high-income households have disproportionately benefited from the new retroactive tax cuts, likely through reduced tax burdens rather than refunds, he said. She says she’s unlikely to spend more because she’ll save money on lower bills.
Overall, Vanden Houten expects higher-income households to spend about 20% of their tax savings, while the rest of Americans will spend 25% to 40% of their increased tax refunds.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
