CBO's February 2026 baseline incorporated revenue projections finalized in December 2025. The baseline projections indicate what the federal budget and the economy would look like if laws governing taxes and spending generally remained unchanged. In the February baseline, CBO projected that federal revenues would total $5.6 trillion in fiscal year 2026, 6.9 percent more than in 2025.

Projections of revenue collections are typically most uncertain for the period from February to mid-May, when the Treasury processes most refunds and receives most payments associated with individual income tax returns for the previous calendar year. Collections were especially uncertain this year, in part because the 2025 reconciliation act included provisions that reduced tax liabilities for calendar year 2025 and were expected to affect refunds and payments made during the spring 2026 filing season. Those provisions include a new deduction available to taxpayers age 65 and older; new deductions for qualified tipped income, overtime pay, and interest on certain car loans; and changes to the deductibility of state and local income taxes.

Collections of individual income and payroll taxes so far this year have been slightly larger than expected; collections of corporate income taxes and customs duties have been smaller. Whether revenue collections for the full fiscal year will ultimately be larger or smaller than in CBO's baseline projections is uncertain and will depend on economic developments and any future changes in tariffs.

Revenues from individual income and payroll taxes were about $30 billion (or 1 percent) greater through mid-May than CBO expected from its baseline projections for the year, its modeling of recently enacted tax changes, and historical patterns in monthly payments. Amounts withheld from workers' paychecks for individual income and payroll taxes were close to CBO's projections. Tax refunds were slightly smaller than expected. Nonwithheld payments, which include final tax payments for calendar year 2025 and some estimated payments for calendar year 2026, have been slightly greater than expected.

Revenues from corporate income taxes were about $20 billion (or 10 percent) less than CBO expected. In the baseline, CBO projected that those revenues would decline in 2026, but the actual decline has been larger. The reasons for the projected decrease in revenues include provisions of the 2025 reconciliation act, particularly provisions allowing full and immediate deductibility for certain investments. In addition, scheduled payments of the deemed repatriation tax were projected to begin decreasing because many firms made their final payments in fiscal year 2025. (The deemed repatriation tax is a onetime tax, paid in installments, on previously untaxed foreign profits.)

Collections of customs duties through mid-May were about $60 billion (or 25 percent) less than CBO expected. That shortfall largely reflects a reduction in the average tariff rate that began in late February. On February 20, 2026, the Supreme Court ruled that the Administration could not impose tariffs under the authority of the International Emergency Economic Powers Act (IEEPA). Shortly thereafter, the Administration terminated those tariffs and imposed new tariffs under section 122 of the Trade Act of 1974. Those changes, on net, reduced collections of customs duties compared with the amounts in CBO's February baseline projections.

Revenues for the remainder of the fiscal year are uncertain, largely because of changes in tariff policy and economic developments. Last week, the Administration began paying refunds related to the $166 billion in customs duties previously collected under IEEPA authority. The timing and the eventual total amount of those refunds remain uncertain, but the refunds will further reduce net customs duties over the next several months. Additional changes in tariffs are likely to affect customs duties because the tariffs imposed under section 122 are limited to 150 days, and the Administration has stated an intention to impose tariffs under alternative authorities in future months. Although payments of tariff refunds will support some additional economic activity in the near term, CBO anticipates that uncertainty about the future path of tariff policy will continue to weigh on the economy. Those factors, along with higher energy prices, will affect revenues in the coming months.

CBO routinely provides the Congress with information about developments that affect customs duties and will provide additional updates about federal revenues when tariff policies change.

Joshua Shakin is the Chief of the Revenue Projections Unit in the Tax Analysis Division.

Source: CBO