Iran war impact on IRS tax refunds: Extra dollars received by Americans likely to get drained for gas price. This section will be hit hard. Details here

U.S. President Donald Trump had promised the largest tax refund season of all time but the ongoing Iran war is all set to dent into the extra dollars received by American tax payers. American tax payers should have enjoyed the unusually large jump in tax refunds from President Donald Trump's tax cut legislation. Yet spiking gas prices are on track to eat up those refunds, leaving most Americans with little extra to spend.

IRS Tax Refunds vs Iran War

Donald Trump said in a prime-time speech in December, "Next spring is projected to be the largest tax refund season of all time." It was intended to address voters' concerns about the economy and stubbornly high prices.


But that was before the Iran war, which began February 28. Oil and gas prices have soared since then, with the nationwide average price of gas reaching $3.94 Sunday, up more than a dollar from just a month earlier.

Gas prices are likely to remain elevated for some time, even if the war ends soon, because shipping and production have been disrupted and will take time to recover. Economists now expect slower growth this spring and for the year as a whole, as dollars that are spent on gas are less likely to be used for restaurant meals, new clothes, or entertainment.

Lower and middle-income households are likely to be hit particularly hard, because they receive lower refunds, while spending a greater proportion of their earnings on gas.

Gas Price vs Extra Tax Refunds

Neale Mahoney, director of the Stanford Institute for Economic Policy Research, calculates that gas prices could peak in May at $4.36 a gallon, based on oil price forecasts by Goldman Sachs, followed by slow declines for the rest of the year. The notion that gas prices decline much more slowly than they rise is so ingrained among economists that they refer to it as the "rocket and feathers" phenomenon.

In that scenario, the average household would 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.

Through March 6, refunds have risen by much less than that, according to IRS data: They have averaged $3,676, up $352 from $3,324 in 2025. Still, average refunds could rise as more complex returns are filed.

Other estimates show similar impacts. Economists at Oxford Economics, a consulting firm, estimate that if gas prices average $3.70 a gallon all year, it will cost consumers about $70 billion — more than the $60 billion in increased tax refunds.