Tax Season Shocker: Fewer Refunds but Bigger Payouts as New Tax Changes Loom

Bigger Average Refund: U.S. taxpayers received an average refund of $3,052 for the 2025 filing season – about 1.6% higher than last year’s $3,004 ^[1]. The IRS paid out $311.6 billion in refunds in total, a slight 0.6% increase despite fewer checks issued ^[2].
Fewer Refund Checks: The IRS issued 102.1 million refunds through Oct. 17, about 1% fewer than the 103.2 million refunds by the same point last year ^[3]. Officials attribute the dip to more accurate withholding and the expiration of certain pandemic-era credits. Notably, 93% of refunds went out via direct deposit, as paper checks are being phased out ^[4].
Record Filings Processed: Americans filed 163.6 million individual tax returns for 2025, up 1.3% from 2024 ^[5]. “The IRS received almost 164 million returns for 2025 – roughly the same number as the last half-decade,” Bloomberg Tax reports ^[6], suggesting a steady post-pandemic filing rate.
IRS Challenges & Delays: This tax season unfolded amid IRS workforce turmoil and a federal government shutdown that temporarily stymied some refunds and IRS phone support ^[7]. Nonetheless, core processing continued, and tax prep companies remain optimistic – H&R Block’s stock ticked up ~2.5% in October on expected “tax season gains” ^[8], while Intuit (TurboTax) stock hovered around $660 per share after strong earnings ^[9].
New Tax Rules Incoming: A sweeping new law, the “One Big, Beautiful Bill Act,” was signed in July 2025, extending the 2017 tax cuts and adding new breaks. For 2025 returns (filed in 2026), the Child Tax Credit rises to $2,200 per child (from $2,000) and seniors get an extra $6,000 deduction ^[10] ^[11]. “The 2025 tax changes dwarf anything I’ve seen in 40 years,” says Mark Steber, chief tax officer at Jackson Hewitt, warning taxpayers to prepare for the most significant overhaul in decades ^[12].

Fewer Checks, Larger Refunds Mark 2025 Tax Season

Americans saw slightly fatter refunds on average this year even as the number of people getting refunds dipped. Final IRS data through October shows the average refund climbed to $3,052, about $48 more than last year’s average ^[13]. That uptick may reflect higher incomes and inflation adjustments that boosted tax withholding – leading many filers to overpay a bit more and get larger refunds. In total, the IRS disbursed $311.65 billion in refunds for the 2025 season, roughly 0.6% more than the prior year ^[14].

However, those dollars were spread across slightly fewer taxpayers. The IRS issued just over 102 million refund payments, down by about 1 million from 2024 ^[15]. In other words, fewer people overpaid their taxes or qualified for refunds, but those who did received marginally higher checks. Tax experts note this “fewer-but-bigger” pattern could stem from the expiration of one-time pandemic credits and improved withholding accuracy. With fewer surprise windfalls from credits like the expired expanded Child Tax Credit, some households that got refunds in prior years may have only broken even or owed a small balance this year.

Notably, the vast majority of refunds arrived electronically. About 93% were delivered via direct deposit, as the IRS pushes to eliminate paper checks ^[16]. In fact, as of September 30, the IRS officially began phasing out paper refund checks for individual filers, per a new Treasury mandate ^[17]. Taxpayers are now required to provide bank account info or use Treasury-backed debit cards for refunds unless they qualify for a hardship exception ^[18]. Only around 7% of individual refund recipients still got a mailed check this year ^[19], a figure expected to shrink further. While going digital speeds up refunds and cuts costs – e-payments arrive in under 3 weeks versus 6+ weeks by mail ^[20] ^[21] – consumer advocates caution this could disadvantage unbanked Americans. The National Taxpayer Advocate noted that about 10 million taxpayers (often low-income, rural, or elderly) still rely on paper refunds due to lack of banking access ^[22]. For these groups, “paper checks aren’t a choice, they’re a necessity,” as one advocate put it ^[23]. The IRS says it will offer prepaid debit cards and limited exceptions so vulnerable taxpayers aren’t left behind ^[24].

164 Million Returns Amid IRS Turmoil

By the close of the extended October 15 deadline, the IRS had received over 163.5 million individual returns for tax year 2024 – about 1.3% more than the prior year ^[25]. “The IRS received almost 164 million individual income tax returns for 2025 – roughly the same number as the last half-decade,” Bloomberg Tax noted ^[26], indicating filing volumes have stabilized near record highs. Of those, 163.0 million returns were processed by mid-October, a 1.1% increase in throughput ^[27]. In short, the tax agency kept pace with a growing workload, setting new records for e-filing. Over 153.6 million returns were filed electronically, up ~1.8%, including a 2.3% jump in e-filings by tax professionals ^[28] – a sign that more taxpayers are turning to pros or software instead of paper forms.

This heavy lifting by the IRS came during a period of internal challenges and uncertainty. The 2025 filing season was the first under a new presidential administration, and the IRS has been grappling with significant turnover. “Some in the tax industry worried that the steep exodus of workers and leadership turnover would hamper the success of filing season,” Bloomberg reported ^[29]. Indeed, the IRS’s workforce has shrunk in key departments – losing nearly 17–19% of staff in some areas over recent years ^[30] – raising alarms about the agency’s capacity. The Treasury Inspector General for Tax Administration (TIGTA) warned in October that staffing losses could lead to refund delays and even allow hundreds of millions in fraud to slip through if not addressed before the 2026 filing season ^[31]. The IRS’s own watchdog projected that without new hires or technology (like scanning of paper returns) in place, processing bottlenecks could worsen next year ^[32].

On top of staffing woes, Washington’s budget showdown hit the IRS at a critical time. A federal funding lapse in October 2025 led to a multi-week government shutdown, forcing the IRS to furlough thousands of employees. During the impasse, ongoing tax operations were partially frozen – tax refunds were “stymied” and the number of taxpayer calls answered plummeted ^[33]. The shutdown stretched through mid-October, overlapping with the final extension deadline, though the IRS continued processing electronically-filed returns on a limited basis. Many taxpayers experienced delays in getting their October refunds, and customer service lines went mostly unanswered until funding was restored. IRS leadership noted that only around 40% of staff stayed on duty during the shutdown (for “essential” functions) ^[34]. This disruption highlighted how vulnerable the tax system is to budget gridlock. “Weeks-long” funding standoffs also stalled the agency’s planning for the upcoming season ^[35], as training and hiring were put on pause.

Despite these headwinds, the IRS “generally ran the 2025 filing season smoothly,” according to a mid-year report to Congress ^[36]. The timely processing of returns and refunds improved compared to some pandemic years, thanks in part to an infusion of resources from 2022’s Inflation Reduction Act. But the recent turmoil underscores the stakes: if planned modernization and hiring initiatives falter, experts say taxpayers could see longer waits and reduced compliance efforts in the future ^[37] ^[38]. TIGTA has urged the IRS to lift its hiring freeze to bring on thousands of new staff by late 2025 ^[39] – a race against the clock to be ready for 2026’s crush of filings.

Tax Prep Industry Sees Shifts and Stock Uptick

With more Americans entrusting their returns to professionals or software, the tax preparation industry is adapting quickly. This year saw a 2.3% increase in returns filed by tax pros and a more modest 1.2% rise in self-prepared e-filings ^[40], per IRS data. The trend may reflect growing tax code complexity and the proliferation of credits/deductions that encourage filers to seek expert help. It also comes as the IRS itself pilots a new direct e-file system – a government-run free filing option – which the tax prep industry has warily eyed. The IRS “Direct File” pilot launched for the 2025 season in 12 states, offering a limited number of taxpayers the ability to file returns directly on IRS.gov without going through private software ^[41]. While taxpayer response to the pilot was modest, Intuit (maker of TurboTax) and other companies lobbied hard against its expansion. Their concerns were largely answered when the new administration and Congress moved to halt the IRS free-file program in its tracks. In fact, a recent decision in Washington effectively defunded the IRS Direct File tool, “removing a potential long-term threat to TurboTax” ^[42]. This policy reversal ensures private tax software will remain a dominant conduit for e-filing, even as the IRS improves its own online services.

Amid these crosscurrents, tax industry stocks have been performing well. H&R Block – the brick-and-mortar tax prep giant – saw its share price climb into the $50s this month, near multi-year highs. Investors bid up HRB stock by about 2.5% in mid-October “following positive sentiment from anticipated tax season gains” ^[43]. The company’s solid earnings and continued client growth have drawn optimism, though at least one Wall Street analyst recently urged caution, noting H&R Block’s stock had outrun its price target ^[44]. Meanwhile, Intuit (NASDAQ: INTU), which dominates DIY tax software with TurboTax, reported robust results. Intuit’s stock rallied 3% in the week after its late-September earnings beat, closing around $661 per share on Oct. 17 ^[45]. That’s still well below its 52-week high (~$814), but analysts remain bullish – most rate Intuit a “Buy” with price targets suggesting significant upside ^[46]. The company has been aggressively expanding into financial software and AI. It unveiled new AI-driven accounting tools this fall to streamline bookkeeping for small businesses ^[47], and its CEO touted a “virtual team of AI agents” boosting TurboTax’s performance ^[48]. Those innovations, plus news that the IRS’s free-file plans were curtailed, have reassured investors about Intuit’s long-term growth ^[49].

More broadly, the stock market has been surprisingly upbeat in the face of tax and political uncertainty. In fact, U.S. indices hit record territory even as the government shutdown dragged on. The Dow Jones Industrial Average surged above 46,500 in mid-October and the S&P 500 notched all-time highs, as investors largely “shrugged off” Washington’s gridlock in favor of optimism about future Federal Reserve rate cuts ^[50]. This market resilience suggests that Wall Street isn’t overly worried that tax administration hiccups or new tax policies will derail the economy in the near term.

Looking Ahead: Major Tax Changes and 2026 Outlook

As Americans gear up for the 2026 filing season (to report calendar year 2025 income), they face the biggest tax code upheaval in a generation. On July 4, 2025, President Trump signed a sweeping tax overhaul – the One Big, Beautiful Bill Act (OBBBA) – which cements or changes dozens of tax rules. “The 2025 tax changes dwarf anything I’ve seen in 40 years,” observes Mark Steber of Jackson Hewitt ^[51]. Many provisions of the 2017 Tax Cuts and Jobs Act, which were set to expire in 2025, are now made permanent ^[52]. That means the current tax brackets (ranging from 10% to 37%) will not jump up in 2026, and the standard deduction will remain nearly doubled from pre-2017 levels instead of reverting ^[53]. In fact, the OBBBA slightly boosted the standard deductions for 2025: single filers can claim $15,750, joint filers $31,500, and heads of household $23,625 – a few hundred dollars higher than 2024’s amounts ^[54]. The personal exemption remains eliminated (apart from a new limited exemption for certain seniors) ^[55].

Beyond extending those tax cuts, the new law introduces targeted breaks aimed at families and older Americans. Starting with 2025 returns, the Child Tax Credit (CTC) maximum increases by $200 per child, from $2,000 to $2,200 ^[56]. This change will put a bit more cash in parents’ pockets – and importantly, up to $1,700 of the CTC will now be refundable for eligible low-income families ^[57] (slightly higher than before). Seniors, meanwhile, gain a valuable new benefit: an additional $6,000 deduction off their taxable income for taxpayers 65 and older ^[58] ^[59]. This “senior deduction” – in effect from 2025 through 2028 – comes on top of the standard deduction and could substantially reduce tax for many retirees. Other notable changes kicking in for 2025 include tax relief on overtime and tip income for certain workers and a much higher cap on the state and local tax (SALT) deduction. The OBBBA raised the SALT write-off limit from $10,000 (set by the 2017 law) to $40,000 ^[60]. While quadrupling the SALT cap will mainly help higher earners in high-tax states (most middle-income taxpayers don’t itemize deductions at all, preferring the larger standard deduction ^[61]), it signals a major shift in tax policy for blue-state residents and could spur more itemized filings in 2025.

Taxpayers and professionals will need to educate themselves on these updates quickly. The sheer scope of changes – affecting everything from family credits to small business expensing – means a higher risk of errors. “There’s more changes, new changes … than anything [I’ve seen],” veteran preparer Mark Steber said, warning that many people may misreport something if they don’t adjust to the new rules ^[62] ^[63]. Unlike during the pandemic stimulus years, the IRS will not automatically correct most mistakes related to these new provisions. So, experts urge taxpayers to do a “tax check-up” now, before year-end. This includes reviewing your paycheck withholding, since the tweaks to credits and deductions could alter your final refund or balance due. For example, families expecting the larger CTC might consider reducing withholding a bit to enjoy more take-home pay now (rather than a bigger refund later). Similarly, seniors who will benefit from the $6,000 deduction may find they owe less than usual, and could adjust quarterly estimates accordingly.

On the administrative front, the IRS says it will issue detailed guidance on all the OBBBA changes before the 2026 filing season ^[64]. The agency has a hefty task training its staff and updating forms/software to reflect the new law. Complicating matters, the IRS is also bracing for budget cuts. Congressional leaders signaled plans to repurpose some of the IRS’s $80 billion funding boost (from 2022) to other uses, potentially curtailing the agency’s long-term enforcement and IT upgrades ^[65]. That tug-of-war over resources could affect customer service and audit rates in coming years.

Yet there’s also good news looking further ahead. Inflation has been easing, so the routine annual adjustments to tax brackets and deductions will be smaller. The IRS recently announced the inflation tweaks for 2026 (for returns filed in 2027): the standard deduction will rise to $16,100 for singles and $32,200 for joint filers ^[66], only about a 3% bump from 2025. Those modest increases are a far cry from the unusually large upward adjustments seen in 2022–2024 when inflation was at 40-year highs ^[67]. In short, taxpayers shouldn’t see dramatic changes in their 2026 tax brackets due to inflation alone – a bit of stability after a volatile stretch.

Bottom Line: The 2025 tax filing season closed on a generally positive note – refunds came a bit quicker and fatter, and the IRS handled a record volume of returns even amid internal strife. “Overall, the IRS continues to process a significant volume of tax returns while providing timely refunds,” one report summed up ^[68]. But the tax world is now entering a transitional year. Taxpayers will need to navigate a host of new rules and opportunities when they file next, from a more generous child credit to the end of paper refund checks. Preparation will be key. Fortunately, with the economy on stable footing and the IRS gearing up early, experts remain confident that Americans can reap the benefits of these changes. Just don’t procrastinate: as Mark Steber advises, a little planning now can “save you a lot of headaches – and maybe money – next spring” ^[69] ^[70].

Sources: IRS & Treasury data ^[71] ^[72]; Accounting Today ^[73] ^[74]; Bloomberg Tax ^[75] ^[76]; CPA Practice Advisor ^[77]; Eide Bailly/TIGTA ^[78] ^[79]; National Taxpayer Advocate Blog ^[80]; IRS News Releases ^[81] ^[82]; TechStock² (ts2.tech) ^[83] ^[84]; Jackson Hewitt via KCCI ^[85] ^[86]; H&R Block & Intuit reports ^[87] ^[88]; Associated Press ^[89]; Congress.gov ^[90].

Tax Refund Surge Ahead — These People Will Get the Biggest Refunds!

Watch this video on YouTube.

References