By David Lawder
WASHINGTON, April 10 (Reuters) – U.S. President Donald Trump in February touted this year’s tax refunds as “substantially greater than ever before,” thanks to new individual tax breaks approved in 2025, telling taxpayers that they should think of him when the funds hit their bank accounts.
“Don’t spend all of this money in one place!” he wrote on the Truth Social media platform.
But that’s what’s happening, as the gasoline pump eats most of the larger tax refunds that people are seeing from new tax breaks on tips, Social Security retirement payments, overtime pay, car loan interest and state and local tax bills that were part of last year’s Republican-backed tax-cut legislation.
Despite a tenuous ceasefire in the U.S. war with Iran, oil prices held close to $100 a barrel on Friday ahead of talks between U.S. and Iranian officials in Islamabad as the Strait of Hormuz remained closed. But even if the waterway, which handles about 20% of the world’s oil supply, reopens soon, fuel prices could keep rising for months, according to the U.S. Energy Information Administration, which predicts global benchmark Brent crude prices will average $96 a barrel this year.
Destruction of energy infrastructure across the Gulf region will limit future output, according to Rystad Energy, which estimates rebuilding costs of at least $25 billion. That figure could rise further as attacks continue.
The drop in energy supply potentially means months more of pain at the pump, and economists say Americans with lower incomes, who spend more of their pay on gasoline, will see the smallest gains from the tax breaks.
U.S. consumer prices jumped by the most in nearly four years in March, rising 0.9%, thanks mostly to a record one-month increase in gasoline prices on the back of the spike in global oil prices and the persistent pass-through of higher tariffs, Bureau of Labor Statistics data showed on Friday. Higher costs for diesel, fertilizer, aluminum and other inputs affected by the Middle East conflict, food inflation and other price hikes could eat what’s left of those refunds.
As of April 3, the average individual refund for the 2025 tax year was up $346, or 11.1%, from the prior-year average to $3,462, according to the latest Internal Revenue Service filing data.
These figures could shift higher ahead of the April 15 tax filing deadline on Wednesday, with estimates clocking in at $560 from Morgan Stanley, $611 from the conservative-leaning Tax Foundation and $1,000 from the U.S. Treasury. But some of that relief may come in the form of reduced income withholding or lower quarterly tax payments by individuals.
TAX REFUNDS TURNING INTO ECONOMIC CUSHION
Economists at the Stanford Institute for Economic Policy Research estimate that war-driven price spikes have pushed up Americans’ average annual gasoline costs for this year by $857. The March 23 estimate was made when Brent futures were trading at $99 a barrel – about $2 higher than on Friday – and assumed that the Strait of Hormuz, which is still largely shut, would reopen around April 10.
Democrats on the Joint Economic Committee in Congress estimate that Americans paid an additional $8.4 billion for gasoline during the first month of the Iran war, based on price data from motorist advocacy group AAA, vehicle fuel economy data from Edmunds.com and federal gasoline consumption data. That figure is more than a quarter of the $30.7 billion increase in total IRS individual refunds through April 3.
“Gas prices are probably the most salient price in the economy,” said Neale Mahoney, a professor of economics at Stanford University. “The impacts may be modest from a macro perspective, but for the sort of kitchen-table economics of a family, and things that they’re paying attention to, they can be big.”
A family that was expecting a bigger refund and planning a bigger summer vacation or kitchen remodel this year may pull back, as they dig deeper into their wallets to fill up their tanks. Grocery bills also are expected to rise as higher diesel, fertilizer, jet fuel and aluminum prices work their way through the economy.
What was meant to be a mild boost to the economy is now turning into more of a cushion against a deeper slowdown, but analysts are starting to mark down U.S. consumption and GDP forecasts by a few tenths of a percentage point. Morgan Stanley now expects 2026 consumption growth to slow to 1.7% from 2.1% in 2025, with durable goods taking most of the hit, while Oxford Economics has slashed its global GDP growth forecast for 2026 to 2.6% from 3.0%, well below the pace of recent years.
BIGGER DEDUCTIONS FOR HOMEOWNERS
Most of the tax breaks in the One Big Beautiful Bill Act passed by the Republican-controlled Congress last year were retroactive to the start of 2025, so most of the first-year benefits will come through claimed income deductions.
Several of these breaks, including those on tips, overtime, Social Security and auto loan interest, are available regardless of whether taxpayers itemize their returns or take the standard deduction, which was also increased by $1,150 for individual filers for the 2025 tax year. This change would yield a refund increase of $138 for those in the 12% tax bracket with incomes of $11,926 to $48,475.
Treasury Secretary Scott Bessent last week called the overtime deduction “a home run,” with 25% of filers claiming it.
But one of the biggest breaks, a $30,000 increase in the deduction for state and local taxes paid, still requires itemization, largely putting it out of reach for non-homeowners who don’t have mortgages or pay property taxes.
It’s not until tax returns reach the market-income range of $71,659 to $126,348 – higher than that of 60% of earners – that taxpayers will still have money left over from the new tax breaks after their higher fuel bills, according to data from the conservative-leaning Tax Foundation. Market income includes adjusted gross income, tax-exempt interest, employer-sponsored health and pension benefits and other items.
But Tax Foundation data shows that the cuts for the top 0.01% of returns above $2.24 million in income still yield a bigger tax savings than for those earning up to $37,486.
(Reporting by David Lawder; Editing by Dan Burns and Paul Simao)
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