Americans are poised to receive bigger refunds when they file their taxes this year than they did in 2025, due to changes in the tax code.
Already, U.S. households have received an average federal tax refund of $3,742, according to IRS data as of Feb. 27. That’s about 10.6% higher than the average refund was a year ago.
This is a big deal: For tens of millions of Americans, the day their tax refund arrives is the biggest single-day cash flow they see all year.
This influx of cash on a mass scale has ripple effects across the whole economy, as Americans use the money for things like paying down debt, buying big-ticket items and topping up savings accounts.
But this year, experts say the economic impact of the U.S.-Israeli war in Iran could derail any potential boost to the economy that would typically come from consumers spending their tax refunds.
Since the onset of the Iran war, the cost of oil has skyrocketed, causing gas and diesel prices to jump too. On Friday, the average cost of a gallon of unleaded gas in the U.S. was $3.64, according to GasBuddy’s live tracker. That is about $0.72 higher than last month’s average price.
“When a war pushes oil up, it is not just a gasoline story,” said Paul Dietrich, chief investment strategist at Wedbush Securities. “Gas prices have already jumped sharply, and diesel costs are rising too. That means higher costs for commuting, groceries, shipping and basic household living.”
“If families have to spend more filling the tank and buying food, they spend less on restaurants, travel, clothing, home goods and everything else,” he said.
The rise in gas prices is just one of several impacts the war in Iran could have on Americans’ household budgets.
Consumers have been under growing economic pressure over the past several years from post-Covid inflation, tariffs, mounting debt and a labor market that started to weaken last year.
“There are still inflation embers in the U.S. economy, and an increase in energy has the potential to raise inflation expectations,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Co.
This, in turn, “may cause [interest] rates to have to go higher to tamp down inflation,” he said.
Already, the war and its economic effects have driven up the cost of home mortgages, whose rates are tied to U.S. Treasurys. On Friday, the interest rate for an average 30-year fixed-rate mortgage was 6.41%, according to Mortgage News Daily — up from just 5.9% right before the U.S. attacked Iran.
This comes after February inflation data released this week showed it had remained steady over the previous month.
But now, with the war in Iran, all bets are off when it comes to inflation.
Any potential economic upside from higher tax refunds is “definitely being muted a bit by what’s going on in the Middle East,” said Max Kahn, president of retail and technology research firm Coresight Research.
If not for the war, he said, taxpayers “might’ve used it for more discretionary items. But probably a higher chunk than expected is going to have to go to gas.”
The good news, however, is that tax refunds could “mute the impact of increased gas prices,” said Kahn. They could also potentially insulate consumers against “psychological worry.”
Still, “it’s not going to create the bump that it might’ve otherwise created,” he said.
The impact of soaring gas prices on individual families’ budgets is relative, however, with the highest burdens placed on those least able to absorb the shock.
“Gas prices typically impact lower income more than upper income, because it’s a higher percentage of their discretionary spending or their overall spending capabilities,” said Kahn.
When it comes to gas, consumers also typically have fewer ways to stretch their dollars than they do with other types of goods. Household items and groceries, for example, can be purchased in bulk or from discount chains.
“When energy costs rise, consumers do not stop spending,” said Dietrich, of Wedbush. “They just stop spending on what they want and spend more on what they have to buy.”
For an economy as reliant on consumer spending as America’s, these broader risks eventually reach across income levels, he said.
“Lower-income households get squeezed by fuel costs, while higher-income households can also get hit if the stock markets hit their asset values and stock market gains,” said Dietrich.
“The Iran war acts like a tax increase on the consumer, except nobody voted for it,” he said.