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On February 13, just two weeks into the tax filing season, the Internal Revenue Service (IRS) indicated the average tax refund was $2,476. This amount is 14.2% higher compared to the early filing period last year.
While there is an expectation in Washington that refunds will be larger because of new deductions under the One Big Beautiful Bill Act (OBBBA), it is still quite early in the filing season. To date, taxpayers filed approximately 15 million Schedules 1A with their IRS Forms 1040. This schedule is used to claim many of the new deductions under OBBBA. Deductions for tips and overtime appear to be a substantial part of the new tax savings.
Andrew Lautz of the Bipartisan Policy Center stated, "An important caveat to any updates this early in the filing season is that it is too early to determine if data points will turn into durable trends." However, as the filing season moves forward and the earned income tax credit (EITC) and child tax credits (CTC) are processed, the size of refunds generally increases.
The IRS website, IRS.gov, has received 42% more visits than it did last year. This figure is an indication that there is great interest in the OBBBA benefits for tips, overtime and the senior deduction that offsets most Social Security payments.
The filing season will be a major test for the IRS. Under various budget cuts and programs allowing early retirement, the IRS has lost about one-fourth of its work force during the past year. As a result, there is still a backlog in individual tax returns. The Treasury Inspector General for Tax Administration notes that IRS staff members are working to reduce the tax return backlog and answer calls from taxpayers.
According to the early statistics, there has been a small decline in filed tax returns. In early filing, there are 2% fewer returns filed electronically and just over 5% fewer returns from tax professionals.
Pete Sepp of the National Taxpayers Union noted, "If, however, we still have double-digit decreases in processing past the end of this month (which we will not know until mid-March), then we can start drawing conclusions about whether there might be systemic service delays."
In Announcement 2026-7, 2026-11 IRB 1, the Internal Revenue Service (IRS) acknowledged the difficulties in implementing the proposed final regulations for required minimum distribution (RMD) guidelines. Proposed regulations (REG-103529-23) originally indicated the new RMD rules would be applicable starting January 1, 2025. After extensive protests by retirement plan administrators, in Announcement 2025-2, the IRS provided a one-year delay.
The proposed and final regulations were intended to create rules for RMDs under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, and SECURE 2.0 Act. The most controversial rule under the final regulations is a requirement that children and other beneficiaries who must take the distribution from an inherited IRA over 10 years are required to take RMDs under the "at least as rapidly" rule if the plan participant passes away after the required date to start RMDs.
The Announcement states, "Final regulations amending Sections 1.401(a)(9)-4, 1.401(a)(9)-5 and 1.401(a)(9)-6, issued pursuant to the 2024 proposed regulations, are anticipated to apply for purposes of determining required minimum distributions for the distribution calendar year that begins no earlier than six months after the date that final regulations are issued in the Federal Register."
Editor's Note: Given a postponed date that is no sooner than six months after the issuance of the final regulations, it is likely that the RMD requirements will be delayed until 2027.
Senate Finance Committee Chairman Mike Crapo (R-ID) and Ranking Member Ron Wyden (D-OR) jointly introduced the Taxpayer Assistance and Service Act. The bill is the result of multiple years of study and proposals. It includes a series of provisions that are designed to "improve communication between the IRS and taxpayers, streamline processes for tax compliance and ensure taxpayers have access to timely expert assistance."
The bipartisan bill received solid support. Senator Crapo stated, "The process of filing your tax return and receiving your refund should be simple and fast. These reforms will improve the taxpayer experience and help the IRS better serve Idahoans and all Americans."
Ranking Member Wyden noted, "One of the most absurd things about our tax system is that its complexity forces millions of Americans to turn to paid tax return preparers every year, but there are zero minimum standards in place to ensure those paid preparers actually know what they are doing or follow the law. Crooked tax return preparers are regularly exploiting taxpayers to pad their own bottom lines, and the worst part is, taxpayers might not even realize they have been ripped off until it is too late."
National Taxpayer Advocate, Erin Collins, also supported the legislation. Collins stated, "I am grateful to Chairman Crapo and Ranking Member Wyden for the time and effort they and their staffs have invested to develop this broad and sweeping legislation that would strengthen taxpayer rights, reduce taxpayer burden, and improve tax administration."
The Taxpayer Assistance and Service Act is comprehensive and includes multiple changes including the following:
Editor's Note: The Senate bill includes implementation within 12 months of enactment. The House of Representatives has passed the Tax Court Improvement Act and the Fair and Accountable IRS Reviews Act. While there still is a legislative process, the bipartisan tax reform bill is likely to move forward to passage. However, given that this is an election year, it is possible its passage may be delayed until 2027.
The IRS has announced the Applicable Federal Rate (AFR) for March of 2026. The AFR under Sec. 7520 for the month of March is 4.8%. The rates for February of 4.6% or January of 4.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2026, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”
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