Tax Refunds Unlikely to Offset Surging Gas Prices in 2026

Spiking gas prices are on track to eat up Americans' tax refunds this year, leaving most with little extra to spend.

Mar. 22, 2026 at 10:56am

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Spiking gas prices in the U.S. are on track to eat up tax refunds this year, leaving most Americans with little extra to spend. President Donald Trump had touted bigger tax refunds in 2026, but the recent Iran war has caused oil and gas prices to soar, with the nationwide average price of gas reaching $3.94 per gallon. Economists now expect slower economic growth this spring and for the year as a whole, as dollars spent on gas are less likely to be used for other discretionary purchases.

Why it matters

The energy shock is expected to hit lower and middle-income households particularly hard, as they receive lower tax refunds while spending a greater proportion of their earnings on gas. This could worsen the 'K-shaped' narrative around the U.S. economy, in which higher-income households have fared better than lower-income ones.

The details

According to estimates, gas prices could peak in May at $4.36 per gallon, and the average household could pay $740 more in gas this year - nearly equal to the $748 increase in refunds that the Tax Foundation has estimated the average household will receive. Other estimates show the impact of higher gas prices could exceed the increase in tax refunds.

  • Gas prices have soared since the start of the Iran war on February 28, 2026.
  • Gas prices are likely to remain elevated for some time, even if the war ends soon, as shipping and production have been disrupted and will take time to recover.
  • Economists expect gas prices to peak in May 2026 at $4.36 per gallon, followed by slow declines for the rest of the year.

The players

Donald Trump

The former U.S. president who touted bigger tax refunds in 2026.

Alex Jacquez

Chief of policy at the left-leaning Groundwork Collaborative and a former economist in the Biden White House.

Neale Mahoney

Director of the Stanford Institute for Economic Policy Research.

Julie Margetta Morgan

President of The Century Foundation, a think tank.

David Tinsley

Senior economist at the Bank of America Institute.

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What they’re saying

“The energy shock is to going to hit those who have the least cushion, and it doesn't look like those tax refunds are going to be here to save them.”

— Alex Jacquez, Chief of policy at the Groundwork Collaborative

“When you start looking across the perspective from a consumer side, you're seeing people who have maxed out their credit cards, are using 'buy now, pay later' to purchase their groceries. They're making it work for now, but that can fall apart quite quickly.”

— Julie Margetta Morgan, President of The Century Foundation

“The longer these gasoline prices persist, the more that will gradually sap consumer discretionary spending.”

— David Tinsley, Senior economist at the Bank of America Institute

What’s next

Economists expect the U.S. economy to expand this year, even if more slowly, given the gas price shock. However, the impact of higher gas prices on consumer spending and inflation will be closely monitored in the coming months.

The takeaway

The surge in gas prices is likely to offset the boost in tax refunds that many Americans were expecting, particularly for lower and middle-income households who spend a greater proportion of their earnings on fuel. This could exacerbate the uneven economic recovery and put further strain on consumer finances.