Morgan Stanley says US tax refunds trending below expectations.

Investing.com -- Tax refunds are running slightly below expectations as higher gas prices threaten to offset gains from increased payments, according to Morgan Stanley.

Federal tax refunds are up 14% year-over-year, below the firm's forecast of a 15-25% increase. The average refund has risen 11%, with more consumers receiving refunds this year.

Morgan Stanley had expected the fiscal bill to boost consumption by only a couple of tenths this year, and current data suggest a potentially smaller effect.

The firm estimates that a 15% increase in average gas prices this year, reaching $3.60 or higher, would more than offset the $350 increase in the average refund.

Including taxes paid, the tax rate is below last year's level but above Morgan Stanley's forecast, implying downside risk to the firm's approximately 20 basis point boost to consumption in 2026.

A larger share of low-income consumers receive refunds, though their refunds are smaller. Gas spending in dollar terms is also lower for this group.

State tax collections are trending higher, with the rise in withholding pointing to continued income growth for high-earning households, according to the report.