Tax Refunds in 2026 May Deliver Economic Stimulus Equal to COVID-Era Payments

When Are Stimulus Checks Coming? A Different Form of Government Support

Most Americans may not realize that a form of government stimulus could arrive in 2026—but not in the way they might expect. Rather than direct payments, the stimulus will come through substantially larger tax refunds, according to analysis from J.P. Morgan Asset Management’s chief global strategist David Kelly.

The timing matters: Kelly’s August LinkedIn post highlighted that these refunds could function similarly to the stimulus checks distributed during the COVID-19 pandemic, potentially affecting consumer spending and broader economic conditions.

Why Refunds Are About to Surge: The Retroactive Tax Cut Effect

The primary reason for the anticipated wave of large refunds lies in how recent tax legislation was implemented. Tax cuts that became law took effect retroactively for 2025 earnings, despite being signed into law after the year had already begun.

The IRS failed to adjust W-2 and 1099 withholding forms accordingly. This means employers continued deducting taxes from paychecks at the previous rate throughout 2025, even though workers’ actual tax liability had decreased under the new law.

Tax Changes Driving the Refund Surge

Multiple provisions created this withholding gap:

• Elimination of taxation on tips and overtime compensation
• Removal of income tax on car loan interest
• Enhanced deduction allowances for state and local taxes
• Expanded standard deduction (permanent)
• Increased child tax credit (permanent)
• New bonus deductions available to retirees

The cumulative effect of these changes means workers overpaid their taxes throughout 2025, setting the stage for exceptionally large refunds when 2026 tax filings occur.

The Numbers: How Much Will Taxpayers Receive?

Kelly’s research paints a striking picture of the financial impact. Analysis through May suggests the IRS will process approximately 166 million individual income tax returns for the 2025 tax year. Of these filings, around 104 million taxpayers are projected to receive refunds.

The average refund amount stands at $3,278 per filer—a substantial sum that could significantly influence household cash flow and consumer behavior early in 2026.

To put this in perspective, this coordinated cash infusion would total roughly $340 billion flowing into consumer pockets over a concentrated timeframe, comparable in impact to pandemic-era direct payments.

Economic Consequences: Stimulus Effects and Inflation Concerns

Kelly contends these refunds will “operate much like fresh stimulus payments, bolstering consumer expenditures and intensifying inflation pressures in early 2026.” The reasoning follows standard economic principles: when consumers suddenly have more disposable income, they increase spending, which can push prices higher.

The parallel to COVID-era stimulus is instructive. Those pandemic payments boosted savings rates temporarily but may have contributed to the inflation surge that followed. A similar pattern could emerge from 2026 refunds.

Could Additional Stimulus Payments Materialize?

Beyond tax refunds, Kelly suggests lawmakers may deploy additional stimulus tools. Should economic growth weaken in the second half of 2026—potentially due to tariff implementation or immigration policy changes—policymakers might introduce direct payments such as tariff rebate checks or similar relief measures to prevent a pre-election economic slowdown.

The Trade-Off: Short-Term Gains, Longer-Term Complications

While receiving a $3,278 refund sounds appealing, the broader implications warrant consideration. A sharp surge in consumer demand could exacerbate existing price pressures, potentially prompting the Federal Reserve to reconsider or slow its interest rate reduction schedule.

The paradox is clear: stimulus payments and tax refunds feel beneficial immediately but may generate structural economic headwinds that challenge household finances over subsequent months and quarters.