Bigger tax refunds aren’t changing how people buy new cars

• Despite larger tax refunds this year, most car shoppers are not splurging on more expensive vehicles.
• The average new car price of nearly $50,000 clashes with what most buyers using tax refunds want to spend.
• Carmakers are offering increased discounts, especially on electric vehicles, to attract buyers and reduce inventory.

Tax refunds are bigger than ever, but car shoppers are not using the extra cash to splurge on new cars.

The Internal Revenue Service indicated that early filers have seen an average refund amount of $3,804 through Feb. 20, according to data released Friday, Feb. 27. That's up 10.2% from the average of $3,453 for the same time frame a year ago.

But new data released by Cox Automotive shows 93% of shoppers who are using refunds toward the purchase of a vehicle are looking at models they already planned to buy. The group said the data suggests there's no discretionary bump from refund season. 

Cox said most car buyers using tax refunds to purchase a new car expect to pay $40,000 or less. But separately, Cox showed the average price of a new car in March 2026 was $49,275, setting up a potential clash in dealership showrooms.

“Tax season has always brought high-intent shoppers into the market, but this year their motivations look very different,” Erin Lomax, vice president of operations consumer marketplace at Cox Automotive, said in a statement. “Consumers are navigating real financial constraints, and they’re looking for dependable, high value vehicles that fit real budgets. Our latest survey reinforces the importance of transparency and affordability for automotive retail.” 

Why are car prices rising?

Cox said car prices are rising because consumers are opting for larger, more expensive cars as they seek to replace cars that are often over a decade old. The average age of a car on U.S. roads was 12.8 years in 2025, which is the most recent data available, according to the National Highway Traffic Safety Administration.

"Despite higher fuel costs, U.S. consumers stayed focused on larger segments in March," Erin Keating, executive analyst at Cox Automotive, said in a statement.

"The numbers this month also show that the industry's near-$50,000 (average transaction price) is reflective of a market that favors large, expensive vehicles," Keating continued. "While affordable vehicles still exist, the demand continues to be concentrated in higher-priced segments."

Cox said the average sales prices for each segment of the car market were as follows:

• Midsize SUV: $49,853, up 2.8% year over year
• Compact SUV: $37,055, up 2.1% year over year
• Full-size pickup truck: $65,964, up 2.8% year over year
• Subcompact SUV: $30,612, up 2.2% year over year
• Compact car: $27,469, up 1.1% year over year

Chris Berg, executive vice president of global fleet management at Hertz Cars Sales, said tax refund shoppers who are recoiling at new car prices are increasingly turning to used vehicles in their search for deals on new wheels.

"What we’re seeing at Hertz Car Sales this tax season is a buyer who knows exactly what they want: maximum vehicle for their money,” Berg said in a statement. “Near-new inventory, vehicles a year old or less with low mileage, is proving to be the smart play in today’s market.” 

What kind of deals are carmakers offering for new car buyers?

Cox said carmakers are offering an average discount of $3,547.80 on new car purchases, which amounts to 7.2% of current total sales price of a new car.

"Incentives in March were higher compared to February, when the average was 6.9% of ATP," Cox said. "Incentive spending has now increased for two consecutive months. In January, incentives stood at 6.5% of ATP. The additional discounts helped improve the sales pace in March and reduce inventory levels."

Cox said the average discount available on a new electric car in March was nearly $8,000.

"Incentives for EVs increased in March, helping improve the sales pace," the group said. Last month, the average incentive for a new EV was 14.6% of the average EV transaction price of $54,508, Cox said. That discount is "more than double the industry average and an increase from 14.2%" of February's average EV price, Cox said.

"One year ago, the average incentive package for a new EV was equal to 12.9%" of the average EV price, Cox said.

When are taxes due and how to file for an extension?

Taxes are due by April 15.

The IRS says filers who need more time can request an extension until October 15, 2026 here.

Susan Tompor, Detroit Free Press Personal Finance Columnist, contributed to this report.