The “K-shaped” economy<\/a><\/span> is hitting U.S. consumers in unexpected ways, including their tax refunds.\u00a0<\/p>\n Higher-income Americans are set to reap bigger benefits in their tax refunds than other households, thanks to changes in the “big, beautiful bill” act<\/a><\/span>,” according to a recent analysis from investment firm Principal Asset Management. The Republican-backed measure, signed into law by President Trump in July of 2025, extended 2017 tax cuts and introduced a host of new tax breaks.\u00a0<\/p>\n Experts have taken to describe the U.S. economy as K-shaped<\/a><\/span> to reflect the trend in which wealthier Americans have pulled further ahead of lower-income workers amid a surging stock market and rising home prices.\u00a0<\/p>\n That pattern is also likely to be visible in this year’s tax refunds, which are expected to rise overall while delivering the biggest gains to upper-middle-income households, Principal Asset Management found.<\/p>\n “The average taxpayer’s cash refund should see a boost of over $700 this year, lifting the typical refund to around $3,800, fueled by retroactive provisions included in the One Big Beautiful Bill Act,” Principal Asset Management market strategist Christian Floro said in a recent report, noting that “these benefits are skewed toward higher-income households.”<\/p>\n The highest-income households, those in the top 1%, won’t benefit as much as those in the top 10% or 5%, largely because the income thresholds in the “big, beautiful bill” act phase out some tax deductions for top earners.<\/p>\n For instance, the new law boosts the state and local tax, or SALT, deduction cap to $40,000 for the current tax year, up from its prior $10,000 limit. But that deduction begins to phase out for taxpayers earning more than $500,000, meaning those in the top 1% \u2014 households with incomes above about $1.15 million \u2014 will not be able to claim it.<\/p>\n The top 1% of earners will see their tax refunds rise by an average of $908 this year, Principal found. That is about one-quarter of the additional $3,748 that households in the top 5% are expected to receive from the IRS.<\/p>\n The lowest earners \u2014 those who earn $33,000 or less \u2014 will see their refund checks increase by an average of $18 this year, according to Floro’s analysis.<\/p>\n The disparity in 2026 refunds “will likely exacerbate the already widening ‘K-shaped’ divergence across consumers,” he wrote. “Indeed, lower-income consumers are facing an affordability challenge amid still-elevated inflation, a softening labor market and limited participation in the positive wealth effects from the rising stock market.”<\/p>\n Still, some lower-earning households could see juicier refunds this year, depending on whether they can claim any new tax breaks, Bank of America Institute said in a January report.<\/a> Some, such as workers in the hospitality industry, could benefit from the tax bill’s deductions for tips and overtime<\/a><\/span>, it noted.\u00a0<\/p>\n![\"Tax](\"https:\/\/datawrapper.dwcdn.net\/BdkN9\/full.png\")
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