Rising Fuel Costs Are Guzzling Boosted Tax Refunds Which Trump Boasted About, Stanford Study Says

Not so fast! Americans looking forward to receiving a tax refund might need to rearrange their budgets. A new study from economists at Stanford University reveals higher gas prices could erase tax refunds.

The average tax refund as of Feb. 2026 is $3,742, according to the Internal Revenue Service (IRS). That's more than 10.6% than last year's average refund of $3,382.

President Donald Trump boasted on Truth Social that Americans can expect bigger tax refunds thanks to the One Big, Beautiful Bill Act he signed into law last year, but now with the Iran war, any extra cash may be going toward gasoline, which has surged in just a month.

The national average gas price is $3.912 for a gallon of regular, compared to $2.934 a month ago, according to AAA.

Stanford economists with the Stanford Institute for Economic Policy Research estimate that households will pay an extra $740 in gas costs this year—"wiping out most or all of the larger tax refunds on average," according to the study.

Of course, the economists point out that the average amount spent will depend on how long the war goes on and how long tankers carrying oil and liquid natural gas are blocked from passing through the Strait of Hormuz.

Budgeting tips

For Americans counting on a tax refund, it's important to go into tax season "not" relying on a refund, as added income—because with fluctuating prices, it's wise to create a budget on the steady income stream you currently have coming in.

"The problem is that fuel prices do not exist in a vacuum. When gasoline and diesel spikes (diesel is now well over $5 per gallon here in Florida and even higher in California), the cost of every product that moves by truck follows almost immediately," Chad Cummings, certified public accountant and attorney with Cummings & Cummings Law, tells Realtor.com®.

"Groceries, building materials, pharmacy goods, and restaurant meals all reprice upward. A tax refund that felt meaningful in January now feels irrelevant once those costs have been absorbed in a household budget."

Recent core inflation data from the U.S. Labor Department's Consumer Price Index (CPI), which excludes volatile food and energy prices and captures more fundamental inflation, came in at 2.5% annually, in line with expectations and also unchanged from January.

But overall prices increased by 2.4% in the 12 months through February 2026.

"Inflation is a one-way street: Once prices increase across the economy, they rarely decrease unless followed by a period of deflation, which is virtually unheard of in modern times," says Cummings.

If you're a homeowner or soon to become one, factor in added expenses and the need to adjust budgets based on economic factors.

"Property insurance premiums have climbed for years. If oil-driven inflation raises rebuilding costs further (think about the cost of materials increasing as a result of increased fuel prices), the next renewal cycle will reflect that increase, further exacerbating the housing affordability crisis," Cummings notes.

"Remember, tax refunds are not income. A refund means the government held your money, interest-free, for over a year," Cummings explains. "Households that treat refunds as a windfall should adjust their tax withholding on Form W-4 to avoid a repeat next year. Households will need that money (in the form of reduced withholding) to cover inflation-driven cost spikes."

Cummings shares this financial planning advice to his clients: "Cut discretionary spending now. Defer vacations. Reduce dining out. Build a cash reserve that covers housing, fuel, and food for 90 days."

He also advises against using credit cards, based on current rates, for routine purchases.

"Now is the time to be frugal."