February-March tax refund surge could offset consumer angst – for now

US tax refunds are arriving in bigger dollar amounts this filing season, and the timing shift toward late February and early March could matter for consumers whose near-term proclivity to spend have likely been battered by recent economic headwinds.

In a research note published this week, economists at S&P Market Intelligence estimated that $190.8 billion in refunds were disbursed from Jan. 26 through March 20, an 11.6% increase from what it calculated for the comparable early-season pace in 2025.

Those estimates aren't far off from the Internal Revenue Service’s actual filing-season snapshot through March 20, which logged $202.595 billion in total refunds issued so far this season. That's up from $179.469 billion at the same point last year, while the average refund rose to $3,571 from $3,221.

Looking out over the first half of the year, S&P projects nearly $335 billion will be disbursed in the first two quarters of 2026, up 11.2% from 2025 and above 2022’s recent high.

For this year's filing season through March 20, the IRS reported 78.893 million total returns received, down 0.9% year over year, and 77.801 million processed, down 1.1%.

"While average refunds are up, the number of returns processed is not," S&P's analysts said, pointing to broadly lower personal tax liabilities combined with a “low-hire, low-fire” labor market dynamic in 2025 that left employment levels relatively steady even as wage growth persisted.

Read more: IRS data show refunds up as return filings slow in early tax season

Direct deposit push changes the calendar

One reason advisors may see clients receive refunds on a different schedule is a policy-driven nudge away from paper checks. S&P pointed to a March 2025 executive order aimed at shifting most federal payments to electronic delivery, followed by indications of only “limited exceptions” for paper checks from the IRS.

“The IRS began sending notices to those who do not include direct-deposit information on their returns, noting that paper refunds could be delayed six weeks or more,” S&P wrote.

IRS data suggest the direct-deposit channel is gaining traction. Through March 20, the agency reported 57.281 million direct-deposit refunds, up 6.5%, and $203.960 billion refunded via direct deposit, up 15.5%.

What to watch in consumer data

Despite recent survey data suggesting people will want to save their tax refunds, the economists at S&P argued the early tranche of refunds is likely to go toward a March spending boost, as the tax credits driving those are more heavily concentrated among lower-income households.

“Historically, we find a 10% increase in refunds, year-over-year, to be associated with a roughly 2% rise in retail spending at general merchandise, apparel, furniture, and other merchandise stores,” the note said.

The upshot, according to S&P, is a welcome bit of good news for retailers who might be grappling with souring consumer sentiment, given recent slowdowns in job gains and sticky inflation. The ongoing conflict in Iran is not likely to be helping, either, as the resulting supply-side oil shock from the still-closed Strait of Hormuz reverberates into higher prices at the pump.

"[W]hile rising gas prices are uncomfortable for consumers, their impact is more likely to show up in measures of consumer wellbeing than aggregate demand, at least for now," the note read.

"Our March baseline assumes a mild and relatively short-lived economic shock stemming from the onset of the war. As the conflict drags on, the risk of a prolonged war with more severe economic consequences rises.