Quick Read
- Average refund for 2025 rose to $3,052, about 1.6% higher than last year.
- IRS issued 1% fewer refund checks, with most payments via direct deposit.
- New law increases Child Tax Credit and senior deductions starting with 2025 returns.
- IRS faced staff shortages and delays due to a government shutdown.
- Paper refund checks are being phased out; unbanked Americans may face challenges.
Record Refunds, But Fewer Recipients: The 2025 Tax Season in Review
For millions of Americans, tax season is a time to hope for a little financial boost. In 2025, the IRS delivered: the average tax refund jumped to $3,052, up about 1.6% from last year’s $3,004. That’s nearly $50 more in the pockets of those who qualified. But here’s the twist—fewer people actually got a refund check.
According to Bloomberg Tax and official IRS data, the agency sent out 102.1 million refunds by October 17, a drop of about 1% from 2024. That’s roughly a million fewer checks. So, what explains this “fewer-but-bigger” pattern?
One reason: more accurate tax withholding. As pandemic-era credits expired, fewer taxpayers got surprise windfalls, and more ended up breaking even or owing a small balance. The IRS also credits better payroll withholding for reducing overpayments, meaning fewer people got refunds simply because they paid the right amount up front.
Despite this, the IRS paid out a record $311.6 billion in refunds—a slight increase over last year. The dollars are being spread among fewer people, but those who did qualify saw a modest uptick. The average refund’s growth may reflect higher incomes and inflation adjustments, which nudged tax brackets and withholding upward.
Going Digital: The End of Paper Checks?
The shift wasn’t just in who got paid, but how. In 2025, a staggering 93% of refunds were sent via direct deposit. Paper checks, once a staple of tax season, are quickly disappearing. As of September 30, the IRS began phasing out paper refund checks for individual filers, requiring most taxpayers to provide bank account information or opt for Treasury-backed debit cards.
Only about 7% of recipients still received a mailed check, and that number is expected to shrink further next year. For most, this means faster refunds—electronic payments typically arrive in under three weeks, compared to six or more for mailed checks.
However, this digital push raises concerns. The National Taxpayer Advocate reports that nearly 10 million Americans, many of them low-income, rural, or elderly, still rely on paper checks because they lack access to banking. “For these groups, paper checks aren’t a choice, they’re a necessity,” one advocate told Accounting Today. The IRS says it will provide prepaid debit cards and hardship exceptions to avoid leaving vulnerable taxpayers behind, but the transition remains fraught for those without easy access to financial services.
IRS Faces Internal Struggles and Shutdown Delays
Behind the scenes, the IRS was operating under considerable strain. The 2025 tax season unfolded during a period of significant staff turnover and the first year of a new presidential administration. Key departments lost nearly 17-19% of staff over recent years, raising alarms about the agency’s ability to keep up with its workload.
Complicating matters, a federal government shutdown in October forced thousands of IRS employees to take furloughs, freezing many tax operations. Refunds were delayed, and customer service lines went mostly unanswered until funding was restored. Only around 40% of IRS staff remained on duty for essential functions, spotlighting how vulnerable the tax system is to budget disputes in Washington.
Yet, the IRS managed to process 163.6 million individual tax returns—up 1.3% from the previous year—and handled the majority of refunds on time, thanks in part to resources from the 2022 Inflation Reduction Act. Over 153.6 million returns were filed electronically, with a notable 2.3% increase in returns prepared by tax professionals. The agency’s resilience in the face of staff and funding shortages was, according to a mid-year Congressional report, “generally smooth.” But the Treasury Inspector General has warned that unless hiring and modernization efforts ramp up, refund delays and compliance issues could worsen next year.
Tax Prep Industry Adapts as IRS Direct File Stalls
As the tax code grows more complex, Americans are increasingly turning to professional help or tax software. This season, there was a 2.3% rise in returns filed by professionals and a 1.2% increase in self-prepared e-filings. The complexity of new credits and deductions encourages filers to seek expert guidance.
The IRS attempted to pilot a free “Direct File” system in 12 states, allowing taxpayers to file directly on IRS.gov. The response was modest, and the tax prep industry pushed back hard, lobbying Congress to defund the initiative. The move succeeded: the Direct File pilot was shelved, ensuring that private software providers like TurboTax and H&R Block remain the dominant players in e-filing.
Industry stocks responded positively. H&R Block’s share price hit multi-year highs in October, buoyed by strong earnings and client growth, while Intuit (TurboTax) closed at $661 per share after beating earnings expectations. Both companies are investing heavily in AI-driven tools and financial software, betting that tax complexity and the demise of free government filing will keep business booming.
Looking Ahead: Major Tax Changes for 2026
For the 2026 filing season (covering 2025 income), Americans face the biggest overhaul in decades. The “One Big, Beautiful Bill Act,” signed in July 2025, permanently extends the 2017 tax cuts and introduces new benefits. The standard deduction gets a bump: singles can claim $15,750, joint filers $31,500, and heads of household $23,625.
The Child Tax Credit increases to $2,200 per child, with up to $1,700 refundable for low-income families. Seniors receive a new $6,000 deduction on top of the standard deduction, reducing taxable income for retirees. The state and local tax (SALT) deduction cap jumps from $10,000 to $40,000, mostly benefiting high-income taxpayers in states with steep taxes.
Tax experts, like Mark Steber of Jackson Hewitt, warn that the scope of changes is “more than anything I’ve seen in 40 years.” Mistakes may be more common as filers adjust to new rules, and the IRS will not automatically correct most errors. Early preparation—such as reviewing withholding and estimated payments—is critical.
The IRS promises detailed guidance before next year’s filing season, but looming budget cuts could hamper modernization and customer service. Congressional leaders are considering repurposing some of the IRS’s $80 billion funding boost, threatening long-term improvements. For now, inflation adjustments for 2026 will be modest, offering stability after years of volatility.
Bottom Line: Preparation Pays Off
The 2025 tax season closed on a generally positive note, with quicker and slightly larger refunds for those who qualified. The IRS managed a record volume of returns despite internal and external challenges. But with sweeping changes coming for 2026, both taxpayers and professionals need to stay alert. The end of paper checks, higher credits, and new deductions mean opportunities—but also risks for the unprepared. As one tax expert put it, “A little planning now can save you a lot of headaches—and maybe money—next spring.”
Analysis: The 2025 tax season reveals a system in flux—more digital, more complex, and poised for further transformation. While the IRS showed resilience amid staffing and budget pressures, the coming overhaul will test its capacity to deliver timely, equitable service. For taxpayers, adapting to new rules will be essential, especially for vulnerable groups who risk falling through the cracks as paper checks disappear. The next chapter in American tax policy will demand both modernization and a renewed focus on accessibility.
