Higher U.S. gasoline prices stemming from the Iran war could effectively wipe out the fatter tax refunds many Americans are expected to collect this year, according to multiple analyses.

The national average for a gallon of gas hit $4 for the first time since 2022 on Tuesday, potentially consuming most or all of this year’s tax benefit, and threatening the economy’s growth, J.P. Morgan analysts said in a research note on Monday.

The “increase has to come at the expense of some other part of households’ spending and/or accumulated savings. This year, it may get paid straight from the tax refund checks now arriving in the mail,” J.P. Morgan analyst Michael Hanson said. 

Economists from the Stanford Institute for Economic Policy Research estimate that the average U.S. household will spend an additional $740 on gas this year because of the jump in global oil prices following the attack on Iran. If that estimate holds true, it would gobble up nearly all of the additional money people are slated to collect in tax refunds this year, according to the research. 

The nonpartisan Tax Foundation estimates that the average individual tax refund will be $748 higher this year because of new cuts provided under the Republican-backed “One, Big, Beautiful Bill Act,” signed into law last year by President Trump.

As of earlier this month, overall tax refunds were averaging $3,676, up 11% from the same point last year, according to the IRS. 

To be sure, the eventual pocketbook hit from higher U.S. energy prices depends on how long the conflict in Iran persists and, more specifically, how long the strategic Strait of Hormuz remains effectively blocked to the tankers ferrying oil and liquid natural gas to global markets. 

Modest consumption boost

A separate analysis from Pantheon Macroeconomics found that bigger tax refunds are unlikely to fully offset the impact of higher gas prices on people’s finances. Steeper fuel costs are set to reduce households’ real incomes by $15 billion per month, the investment advisory firm estimated. 

By comparison, between February and April, larger refunds this tax season are expected to boost household budgets by a combined $10 billion, Pantheon estimated.

“The round of individual tax refunds currently underway will offer only modest and short-lived support to consumption, offsetting just part of the blow from rising gas prices,” analysts with the firm said. 

“Rockets and feathers”

The Stanford researchers’ calculation of the additional household gas expenditures assumes that the strait will remain closed for three weeks. If tensions ease and tankers start traversing the waterway sooner, estimates of how much consumers could spend on gas would change, Neale Mahoney, director of the Stanford Institute, told CBS News.

The Stanford estimate also reflects the “rockets and feathers” principle, Mahoney added — the concept that product prices are quick to shoot up when input costs climb, but tend to drift down slowly when those same costs decline. 

For now, the impact on energy costs is evident. The average price for a gallon of regular gas jumped to $4.02 a gallon Tuesday, according to AAA, up from $3.99 on Monday and more than $1 from a month ago.

The Trump administration has touted tax cuts under the “big, beautiful bill.” The new law eliminated taxes on some overtime and tipped income, and raised the limit on the deduction for state and local taxes, or SALT, from $10,000 to $40,000. 

The extra money will come in handy. A recent survey from Bank of America Global Research found that 36% of respondents said they plan to use their tax refund to pay off debt. Roughly 10% said they would make a major purchase or cover everyday expenses, while about 13% expect to put the money toward savings.