Tax season serves as a make-or-break moment for U.S. auto sales, and this year may be no exception. As Americans begin filing their returns, the automotive industry is watching closely — not because of new vehicle launches or production changes, but because of what’s landing in consumers’ bank accounts.
For many households that have been sidelined by soaring vehicle prices and high interest rates, a larger-than-expected tax refund could provide the financial breathing room needed to finally make a purchase — whether new or used.
A Potential Boost — or Another Warning Sign
The extra cash flowing in during tax season could offer a much-needed lift to an industry grappling with slowing sales. But it could just as easily highlight ongoing challenges: elevated vehicle prices, costly financing, and cautious consumers unwilling to take on large loans.
Charlie Chesbrough, senior economist at Cox Automotive, recently noted that many taxpayers may be pleasantly surprised this year.
According to Chesbrough, many Americans could end up owing less in taxes and receiving larger refunds than expected — something that might nudge hesitant buyers back into showrooms.
Refunds Are Rising
Early data from the Internal Revenue Service shows that the average tax refund is up 10.9% compared with the same point last year. As of early February, the average refund stood at $2,290, up from $2,065 a year earlier.
These increases stem partly from tax changes introduced under the Donald Trump administration, including the One Big Beautiful Bill Act signed last July. Among other adjustments, the law eliminated taxes on overtime and tips and allowed eligible taxpayers to deduct up to $10,000 in annual interest paid on loans for new, U.S.-assembled vehicles.
Because several of these provisions were made retroactive to January 2025, some taxpayers may have had more withheld from their paychecks than necessary — resulting in bigger refunds this spring.
Timing Matters: Q1 and Q2 Sales
Industry analysts believe the timing could be critical. David Oakley, who manages Americas vehicle sales forecasts at GlobalData, suggested that the first half of the year — particularly the first and second quarters — could see a measurable impact.
March, historically, is one of the strongest months for vehicle sales in the U.S., especially in the used market. Over the past 12 years, March has accounted for an average of 9.1% of annual new-vehicle sales, trailing only December.
That seasonal strength, combined with larger refunds, could create a short-term surge in demand.
Not the Same as the Pandemic Boom
There are parallels to the Covid-era stimulus period, when many Americans used $1,400 government checks to purchase vehicles. However, the economic environment today is very different.
Back then, federal interest rates were near zero, and new-vehicle inventory was severely constrained. Today, the Federal Reserve’s benchmark rate sits between 3.5% and 3.75%, significantly increasing borrowing costs. On the flip side, dealership inventory has improved considerably.
The equation has changed: buyers have more vehicles to choose from — but financing them is far more expensive.
Record Prices and Monthly Payments
Higher interest rates and elevated vehicle prices have pushed monthly payments to record levels. According to Edmunds, owned by CarMax, the average monthly payment for a new vehicle reached $772 in the fourth quarter — an all-time high.
Meanwhile, the average transaction price for a new vehicle in the U.S. hovers near $50,000, roughly 30% higher than at the start of 2020, according to Cox Automotive.
To offset rising costs, more buyers are stretching their loans over longer terms. A larger tax refund used as a down payment could help lower those monthly obligations — making a purchase feel more manageable.
But Consumers Are Stretched Thin
The key question remains: will consumers actually use their refunds on vehicles?
Many households are financially strained. Credit card debt nationwide has climbed to a record $1.28 trillion, according to the Federal Reserve Bank of New York. For some, a tax refund may go toward paying down high-interest balances rather than making a major purchase.
Consumer sentiment also paints a cautious picture. Confidence fell to 84.5 in January — its lowest reading in nearly a decade — as Americans wrestle with persistent inflation and concerns about the labor market.
As Chesbrough points out, auto loans of $40,000 to $50,000 require confidence — not just cash. Buyers need to feel secure about their jobs and the broader economy before committing to long-term debt.
A Defining Test for 2026
Ultimately, Tax season serves as a make-or-break moment for U.S. auto sales because it reveals how American households truly feel about their financial stability.
If larger refunds translate into stronger showroom traffic, it could signal that pent-up demand remains alive — merely delayed by economic pressures. If not, it may confirm that high prices and financing costs continue to outweigh temporary boosts in disposable income.
For automakers and dealers alike, the coming weeks will offer one of the earliest and clearest signals of where the market is headed this year.
