2026 Tax Refunds Forecasted Higher — What Vermont Car Buyers Should Know

Good news, Vermont! Financial experts and tax analysts are predicting that federal tax refunds for tax year 2025 (the ones you'll file in early 2026) will be larger on average than last year's. That's especially true for the Green Mountain State.

That's welcome news for hardworking Vermonters - and an opportunity for those considering using their refund toward a vehicle purchase. Here's what's behind the bigger refund outlook and how you can make it work for you this coming tax season.

Good news, Vermont! Financial experts and tax analysts are predicting that federal tax refunds for tax year 2025 (the ones you'll file in early 2026) will be larger on average than last year's. That's especially true for the Green Mountain State.

In fact, the Manheim Q3 2025 Used Vehicle Value Index Call - a division of Cox Automotive - projected that Vermont and Hawaii will see the largest average refund increases in the country, with refunds anticipated to be more than $1,200 higher than the previous year.

1️⃣ Inflation-Adjusted Tax Brackets and Standard Deduction for 2025

Every year the IRS adjusts income brackets and deduction amounts to keep pace with inflation. For tax year 2025 (filed in 2026), those adjustments are significant enough to reduce taxable income for many households:

Single filers: standard deduction increases to $15,000 (up about $400).
Married filing jointly: standard deduction increases to $30,000 (up about $800).

That means more income shielded from federal tax and more money potentially coming back at tax refund time for those whose wages didn't increase in step with the indexed, standard deduction increase - a win for everyday earners.

2️⃣ New "No Tax on Overtime" Deduction

The One Big Beautiful Bill Act passed in July 2025 introduced a powerful new benefit: the No Tax on Overtime Deduction. Beginning with 2025 returns, taxpayers can deduct qualified overtime compensation from their taxable income.

Applies to the "premium portion" of overtime pay (the extra half-time above standard rate).
Maximum deduction: up to $12,500 for single filers or $25,000 for married couples.
Income phase-outs start around $150,000 (single) and $300,000 (joint).

For anyone clocking in extra hours, this new rule could mean a noticeably larger refund check when you file early next year.

3️⃣ New "No Tax on Tips" Deduction

Service workers finally get some relief too. A similar 2025 provision lets eligible employees in tipped occupations - such as servers, bartenders, baristas, hairstylists, and delivery drivers - deduct a portion of their qualified tips from taxable income.

Deduction limit: up to $25,000 per year.
Same income phase-out thresholds apply as with the "No Tax on Overtime" rules.
Applies only to occupations the Treasury defines as "customarily and regularly receiving tips."

If you or someone in your household earns tips, this deduction could add hundreds - or even thousands - to your refund.

4️⃣ Withholding Mismatches & Timing Effects

Because these new deductions took effect mid-year, many employers didn't adjust their payroll withholding tables right away. That means workers may have over-withheld federal taxes throughout 2025 - resulting in larger refunds when returns are filed in early 2026. Combine that with inflation-adjusted brackets, and it's easy to see why refunds are forecasted to rise.

For Vermonters, the larger-than-average refund forecast translates directly into more buying power. At Upper Valley Auto Mart in White River Junction, we know that tax-refund season is one of the best times to buy - but timing matters.

Serving Vermont drivers for years, we've seen firsthand how a well-timed purchase can stretch your refund dollars further than you might expect.

Better Selection, Lower Prices: Wholesale used-vehicle prices traditionally dip in December and January. Dealers who stock up early - like Upper Valley Auto Mart - can pass those savings to customers through late winter and early spring.

Less Competition: Many shoppers wait until late March or April, once refunds hit. By filing early and shopping early, you face less competition and more options.

Avoid the "Stimulus Effect": Economists expect this refund surge to stimulate spending, much like the COVID-era checks did. As that demand picks up, so can prices - for vehicles, goods, and services alike.

Translation: the earlier you file and shop, the better your chances of finding the perfect used car or SUV at a great price.

Bonus Tip for Shoppers Rebuilding Credit

If you've had credit challenges in the past, now's the perfect time to get prequalified. Knowing your budget before your refund arrives helps you plan how much to use as a down payment - and the more you put down, the better your loan terms may be. Our finance specialists at Upper Valley Auto Mart work with trusted local and national lenders to make financing simple, transparent, and flexible for every customer.

Gather your tax documents early and file as soon as the IRS opens the 2026 filing season.

Estimate your refund and decide how much to apply toward a vehicle purchase.

Get prequalified with Upper Valley Auto Mart to see what you can afford.

Shop our latest used car inventory between January and early March - when selection and pricing are strongest.

Use your refund to upgrade confidently, knowing you timed the market just right.

With tax-year 2025 refunds projected to be larger - and Vermont among the top states for increases - 2026 could deliver one of the most rewarding refund seasons in years. Combine that with early-year pricing advantages, and there's no better time to plan your next vehicle purchase.

Upper Valley Auto Mart has always been proactive about stocking quality inventory during the early-season market downturn, ensuring you'll find the right vehicle at the right price when your refund arrives.

File early. Shop early. Save more. Let's make your 2026 refund work harder - and drive farther - for you.