Bigger Refunds, Bigger Bills: How Inflation Is Eating Into Subprime Paydowns in 2026

That collective sigh of relief you may have heard last week likely came from people who had just filed their taxes in time to beat the April 15 deadline. 

Tax season can often be a cause of consumer frustration. But this one brought good news to many filers as refunds have come in more than 11% higher, on average, in 2026 than they did in the prior year, according to a new report. 

Tax changes that President Donald Trump’s One, Big, Beautiful Bill Act brought about are the reason for the increase in refunds, Bloomberg disclosed in a recent article.

The White House put out a release earlier this year highlighting predictions from experts that tax refunds would soar in 2026.

For subprime borrowers and others facing financial hardships, a bigger refund may be just what they need to get through a rough patch. The financial perspective hasn’t been easy for many people in the country over the first quarter and change of 2026.

The One, Big, Beautiful Bill Act has brought about tax changes that increased the average federal refund in 2026 by approximately $350 over last year’s figure.

A new Forbes report reveals that not only is U.S. inflation above target, but higher inflation is on the way. 

Meanwhile, refunds on federal taxes are close to $3,500 in 2026, on average. The extra money coming back to tax filers this year amounts to approximately $350 more than people received in tax refunds last year. 

While suddenly gaining access to thousands of dollars may seem like a good reason to splurge on a vacation or front-row tickets to a concert, many people are using the funds to pay down debt.

Bloomberg reported that people who filed their taxes early this year boosted their payments to debt by roughly 20% within three weeks of receiving their refund. In addition to credit card debt, borrowers have used tax refunds to make payments toward car and student loans.

“They’re not just rushing out and blowing these refunds,” David Tinsley, Senior Economist at the Bank of America Institute, told Bloomberg. “They’re also repairing their balance sheets.”

A Different Plan for Building Savings

People follow different strategies when it comes to managing taxes. Some consumers who don’t want to face a big tax bill when April rolls around may choose to withhold more in taxes from their paychecks throughout the year.

Certain taxpayers may not feel comfortable with the thought of giving the government a bigger interest-free loan. But people can also use the strategy of withholding more money from their paychecks as a way to set aside savings over the course of the year. 

Following that approach may be worth considering for people who have trouble resisting the temptation to dip into their savings account every time a flashy advertisement catches their eye.

One look at U.S. household debt suggests that people could benefit from some new tactics in the area of savings and managing debt. The Federal Reserve Bank of New York issued a report indicating that total household debt in the country grew to $18.8 trillion in the fourth quarter of 2025.

Borrowers can use the increased tax refunds they receive in 2026 to pay down debt and get their household finances into better shape.

That figure represents an increase of more than $190 billion over 2025’s third quarter. 

Spring is a time of renewal when the long winter in many parts of the country finally starts to subside. People can use the tax refunds they get in the spring to reset their approach to money management and renew their finances, and that’s especially true in 2026.

But lenders preparing for a significant increase in repayments from borrowers after this tax season may not receive as much as they had hoped for.

National Public Radio reports that the average cost of a gallon of regular gas in the U.S. has shot up well past $4 as international conflicts drag on. The price of gas may put more of a strain on household budgets in the months ahead as people fuel up to hit the road for summer excursions.

“The tax refund season might be very good, but it’s also being offset by this price in gasoline,” Michael Pearce, Chief U.S. Economist at Oxford Economics, told NPR.