US Tax Refunds Increase in 2026, but War in Iran May Affect Spending

Greater Tax Refunds for Americans in 2026

In light of recent changes in the tax code, Americans are set to receive larger refunds during their 2026 tax filing compared to the previous year.

An Overview of the Average Tax Refund

As per the latest IRS data, US households have seen an average federal tax refund of $3,742, marking a roughly 10.6% increase from the previous year’s average tax refund.

Impact of Large Tax Refunds on the Economy

This trend is significant, because for many, tax refund day represents the largest single-day cash influx they receive all year. This cash injection can stimulate the economy as Americans use these funds to pay off debt, make major purchases, or bolster their savings accounts.

Potential Economic Disruption due to the Iran War

However, financial experts caution that the economic fallout from the US-Israeli war in Iran could potentially offset the economic benefits usually seen from consumer tax refund spending.

Impact of Rising Oil Prices on Household Budgets

Since the Iran war began, the cost of oil has surged, leading to a spike in gas and diesel prices. This is reflected in the current average gas price of $3.64 per gallon in the U.S, a significant increase from last month’s average.

The Wider Impact of Rising Energy Costs

According to Paul Dietrich, Chief Investment Strategist at Wedbush Securities, higher gas prices don’t just affect drivers. The increased cost of fuel impacts the entire economy, causing an uptick in costs associated with commuting, groceries, shipping, and basic living expenses.

The Economic Pressure on American Consumers

Rising gas prices are just one aspect of the economic stress placed on American households due to the Iran war. Other significant stressors include post-Covid inflation, tariffs, growing debt, and a weakening labor market.

Effect of Rising Energy Prices on Inflation and Interest Rates

Rising energy costs could also fuel inflation expectations, potentially necessitating higher interest rates to curb inflation, according to Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management Co.

Rising Mortgage Rates Due to War

The ongoing war and its economic repercussions have increased the cost of home mortgages, which are tied to U.S. Treasurys. As per the Mortgage News Daily, the interest rate for an average 30-year fixed-rate mortgage was 6.41% — up from just 5.9% before the US attacked Iran.

Uncertainty Around Inflation Amid War

While the February inflation data showed that it remained steady over the previous month, the ongoing war in Iran has made future inflation predictions uncertain.

The Potential Silver Lining of Larger Tax Refunds

On a more positive note, larger tax refunds could possibly cushion the blow of increased gas prices and even alleviate some of the psychological stress associated with financial uncertainty, says Max Kahn, President of Coresight Research.

Impact of Gas Prices on Household Budgets

The impact of rising gas prices on household budgets varies greatly, with lower-income households often being hit the hardest due to gas expenses making up a larger proportion of their overall spending capability.

Implications for Consumer Spending And the National Economy

“When energy costs rise, consumers do not stop spending. They just stop spending on what they want and spend more on what they have to buy,” cautions Dietrich. In a consumer-driven economy like America, this phenomenon could potentially affect all income levels.