Millions of Americans in high-tax states are receiving larger federal tax refunds this season, a direct result of the expanded state and local tax deduction in President Donald Trump‘s tax law.
Congress raised the SALT deduction cap to $40,000 from $10,000 under last year’s One Big Beautiful Bill. The change benefits taxpayers who itemize deductions, largely those earning between $150,000 and $600,000 and is concentrated in states such as New York, New Jersey and California.
The break is expected to save taxpayers roughly $29 billion this filing season, more than the new overtime and tips deductions combined, according to a Piper Sandler analysis.
Blue States Lead Refund Growth
Refund data already shows the geographic tilt. An analysis by Navy Federal Credit Union found average refunds in California are up 21% from 2025, Virginia up 13%, and Maryland up 12%. The national average among the credit union’s members is 11%. Florida and Texas, which have no state income tax, saw refunds rise just 6% and 5%, respectively.
Early IRS data support the broader trend. The average refund climbed to roughly $2,290 through early February, up 10.9% from the same period in 2025, according to IRS figures. Treasury Secretary Scott Bessent has projected refunds could rise by $1,000 to $2,000 for many households.
Who Benefits And Who Doesn’t
The deduction is available only to those who itemize, meaning lower-income taxpayers largely miss out. According to the Tax Policy Center, just 0.1% of the bottom 20% of earners benefit, compared with 70.5% of those in the 95th to 99th income percentile.
The cap also phases out at higher incomes, shrinking once earnings reach $500,000 and reverting to $10,000 for anyone earning $600,000 or above. Unless Congress acts, the $40,000 cap expires after 2029.
The benefit arrives as inflation pressures mount. The OECD projects U.S. headline inflation will rise to 4.2% in 2026, up from 2.6% last year, driven largely by an energy shock tied to the Middle East conflict. For many recipients, the refund is going toward essentials rather than discretionary spending.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo courtesy: Shutterstock
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