Tax season opens Jan 26. Here's how you'll be able to track a refund

Tax season opens Jan. 26 and the IRS reports the 2025 average refund was $2,939, with many analysts expecting larger refunds this year after President Trump’s 2025 tax and spending package; Oxford economist Nancy Vanden Houten estimates as much as $50 billion in additional taxpayer savings due to employers not updating withholding. The IRS is phasing out paper checks and pushing direct deposit (used by >90% of taxpayers), with most e-filed/direct-deposit refunds issued in under 21 days and EITC/Additional Child Tax Credit refunds delayed by law until mid‑February (most available by March 3 for early filers). The net effect is likely to increase near-term household liquidity and support consumer spending, though the story is operational and unlikely to move financial markets materially.

Analysis

Market-structure: Bigger, faster direct-deposit refunds (avg ~$2.94k; ~75% of taxpayers) and an estimated $50bn incremental tax-season cash infusion concentrate short-term liquidity into deposit accounts, Cash App/PayPal wallets and prepaid rails (weeks Jan–Mar). Winners: payment processors (V, MA, GPN), fintech deposit/instant-pay platforms (SQ, PYPL, GDOT) and tax software (INTU, HRB); losers: check printers/processors (DLX) and legacy paper-pay infrastructure. Competitive dynamics favor firms that own rails or consumer wallets—expect modest incremental market share gains (1–3 pts) for mobile-first players during refund season.

Risk assessment: Immediate risks (days–weeks) include IRS processing delays, EITC/CTC holdbacks (legal mid-Feb floor; many available by Mar 3) and elevated fraud/chargebacks in prepaid channels; medium-term (months) regulatory scrutiny on fee structures for prepaid cards is a tail risk. Hidden dependencies: refunds routed to nonbank apps boost short-term deposits but increase operational/customer-service costs and dispute rates for fintechs; if fraud rises >1–2% of refund volume it meaningfully erodes margins. Catalysts to watch: weekly IRS “Where’s My Refund” flows, Jan/Feb Retail Sales prints, and bank deposit data (weekly H.8) through March.

Trade implications: Tactical, short-dated directional trades around Jan–Mar—long payment rails and wallet providers into peak deposit window and short legacy check/value-chain names over 6–12 months. Options: defined-risk call spreads on SQ/PYPL and XLY to capture elevated consumer spending post-refund; buy put or put-spread on DLX as secular check decline accelerates. Cross-asset: small uptick in consumer-discretionary cyclicals and a marginal tightening of short-term ABS/credit spreads if refunds reduce delinquencies; sovereign bonds little impacted but curve could steepen slightly if Q1 consumption surprise >0.2% q/q.

Contrarian angles: Consensus treats refunds as a benign one-off; underappreciated are operational/regulatory shocks (fraud, contested deposits) that could compress fintech margins by >200–400bp if sustained. Conversely, markets may underprice the $50bn timing effect on Q1 retail sales—if >60% of incremental refunds are spent within 30 days, select retailers/auto accessories could see 3–6% upside in Feb sales vs. expectations. Historical parallel: 2018 refund timing spikes produced outsized Feb retail beats; repeat would favor short-duration consumer and payments exposure but penalize legacy check vendors.

Key Decisions for Investors

• Establish a 2–3% portfolio long split (60% SQ, 40% PYPL) by Jan 31 to capture Cash App/PayPal inflows; use Mar 3 as a primary take-profit date aiming for +15–25% and set a hard stop at -12%.
• Initiate 1% long positions in Visa (V) and Global Payments (GPN) (0.5% each) to play rails volume; target +8–12% by end of Q1 2026 and exit on two consecutive weekly retail prints below consensus.
• Open a 1–2% notional put-spread on Deluxe (DLX) (6–9 month expiry) sizing to target 15–30% downside as paper checks phase out; cap max loss at premium paid and tighten if DLX trading above -20% from entry.
• Buy defined-risk call spreads on XLY (or equivalent ETF) expiring April 2026 (buy ATM, sell +10–15% strike) sized 1–1.5% to capture Feb–Mar spending upticks; close after two consecutive stronger-than-expected Retail Sales prints.
• Monitor weekly IRS ‘Where’s My Refund’ volumes, Jan/Feb Retail Sales and weekly bank deposit H.8 through March; if refund-tracking shows >10% slower e-deposit conversion or fraud headlines spike, reduce fintech/wallet exposure by 50% within 3 trading days.