It’s rather intriguing how the “K-shaped” economy is making its presence felt among U.S. consumers, especially regarding their tax refunds.
With the extension of the 2017 tax cuts through the “big, beautiful bill” act, spearheaded by Republican backing and signed by President Trump in July 2025, the higher-income households are likely to fare better in terms of tax refunds. This analysis comes courtesy of Principal Asset Management. Their findings highlight that those who are better off will see more substantial refunds than other groups. You can read more about this on Investopedia.
The concept of a K-shaped economy describes the widening divide where well-off Americans continue advancing, as less fortunate workers lag despite a buoyant stock market and property prices. Surely, this year’s tax refunds will reflect that trend. According to Principal Asset Management, they foresee a general rise in refunds, with upper-middle-income households benefiting the most.
Tax Refund Boosts
Christian Floro, a strategist with Principal, remarked that the average taxpayer should receive an additional $700 or so this year. This increase raises the typical refund to about $3,800, thanks to retroactive stipulations in the One Big Beautiful Bill Act. However, it’s worth noting that the perks disproportionately favour the higher-income households.
The loveliest twist in this tale is that the top 1% will not see as much advantage. They are somewhat held back by the income thresholds in the “big, beautiful bill” act, which gradually limits some tax deductions for the wealthiest among us.
| Income Group | Average Refund Increase |
|---|---|
| Top 1% | $908 |
| Top 5% | $3,748 |
For instance, the new legislation has increased the state and local tax, or SALT, deduction cap to $40,000, compared to the previous $10,000 limit. This provision begins to wane for those earning over $500,000. Consequently, the very top 1%, with incomes beyond $1.15 million, will miss out on claiming it.
Impact on Lower-Income Households
Unfortunately, at the other end of the spectrum, the lowest earners, those taking home $33,000 or less, will see their refunds grow by a mere $18 on average, as per Floro’s analysis.
As he aptly observed, the disparity in 2026 refunds might deepen the expanding ‘K-shaped’ divide. Lower-income consumers are grappling with affordability issues due to ongoing inflation pressures, a softening job market, and minimal gains from the buoyant stock market.
Nevertheless, there might be a glimmer of hope. Some low-income households could potentially receive larger refunds, depending on their eligibility for new tax breaks. As the Bank of America Institute stated in a January report, workers in industries like hospitality might benefit from deductions on tips and overtime. You can delve deeper into that on Bank of America.
Further Reading
Explore more of this fascinating economic narrative over at CBS News.
For an in-depth analysis, don’t miss out on the insights offered by The Free Press.
