The US government has paid back $81 billion in refunds after the Supreme Court ruled many of Trump’s tariffs illegal. On February 20, 2026, the Court struck down President Donald Trump’s emergency tariffs in a ruling that cut across ideological lines, with justices concluding that Trump lacked the authority to impose sweeping import taxes by claiming a national emergency. The ruling initiated one of the largest government repayment programs in US fiscal history, reshaped the federal budget outlook for fiscal year 2026, and triggered a scramble inside the White House to rebuild the administration’s tariff architecture using different legal tools.
Executive Summary
The US Department of the Treasury reported on July 13 that growing refunds from President Trump’s illegal tariffs pushed the June federal budget deficit to $120 billion, a sharp turnaround from the $27 billion surplus in June 2025. For the fiscal year to date, the deficit rose $29 billion, or 2%, to $1.367 trillion, with receipts up 4% to $4.151 trillion and outlays rising 3% to $5.518 trillion. The administration has pivoted to alternative legal authorities, Sections 122, 232, and 301 of existing trade law, to maintain tariff revenue while new formal investigations proceed. The legal landscape remains actively contested, with further court challenges already under way.
The Legal Foundation: How IEEPA Became the Tariff Engine
President Trump used IEEPA to impose most of his new tariffs, the first time the emergency law had been used for that purpose. The International Emergency Economic Powers Act of 1977 grants the president broad authority to respond to “any unusual and extraordinary threat” to the national security, foreign policy, or economy of the United States originating from outside the country. The Trump administration’s legal theory was that this language, specifically the phrase “regulate importation,” implicitly included the power to impose tariffs.
Trump imposed country-specific “reciprocal tariffs” under IEEPA to pursue two stated objectives: responding to what he described as trade deficits that had “led to the hollowing out” of the American manufacturing base, and leveraging tariffs to achieve non-trade-related goals, including stemming the flow of drugs and immigrants into the US, pressuring Denmark over Greenland, and deterring countries from buying Iranian oil.
Trump invoked IEEPA to announce tariffs of at least 10% on imports from almost all US trading partners, along with higher, country-specific “reciprocal tariffs” for many countries. The so-called “Liberation Day” tariffs, announced in April 2025, were the broadest application of this authority.
The Legal Challenges Begin
Several US businesses sued the federal government over the tariffs, arguing they exceeded the president’s authority under IEEPA. The plaintiffs included small business owners, American manufacturers and retailers, and several state attorneys general. On May 28, 2025, a panel of judges at the US International Court of Trade unanimously ruled that the IEEPA tariffs were illegal, a ruling the US Court of Appeals upheld on August 29, 2025, affirming the lower court’s finding that the tariffs violated federal law.
Every lower court that reviewed Trump’s emergency tariffs found they violated federal law, though for different reasons. In one case, an Illinois-based educational toy company, Learning Resources, sued in a federal district court in Washington, which also ruled against Trump. That case went to the Supreme Court, leapfrogging the DC Circuit. The courts in both cases put their rulings on hold temporarily, allowing the administration to continue collecting the tariffs while appeals played out.
The Supreme Court Ruling: Learning Resources, Inc. v. Trump
On February 20, 2026, the Court ruled 6-3 in Learning Resources Inc. v. Trump and V.O.S. Selections v. United States that “IEEPA does not authorize the President to impose tariffs.” Chief Justice John Roberts was joined by Justices Sotomayor, Kagan, Gorsuch, Barrett, and Jackson, while Justices Thomas, Kavanaugh, and Alito dissented.
Chief Justice Roberts wrote that the president’s authority rested on “two words separated by 16 others in IEEPA, ‘regulate’ and ‘importation.'” Those words, Roberts concluded, “cannot bear such weight.” He noted that “IEEPA contains no reference to tariffs or duties” and that “until now no President has read IEEPA to confer such power.”
The Major Questions Doctrine
The Court’s reasoning turned heavily on the “major questions doctrine”, a legal principle holding that courts should not infer that Congress granted the executive branch sweeping authority over matters of vast economic and political significance unless Congress said so explicitly. The Court concluded that although IEEPA permits the President to “regulate” importation during a declared national emergency, that language does not clearly authorize the imposition of tariffs, and the Constitution assigns to Congress the authority to “lay and collect Taxes, Duties, Imposts and Excises.”
Justice Gorsuch, concurring, wrote that the president claimed IEEPA conferred “an extraordinary power, the power to impose tariffs on practically any products he wants, from any countries he chooses, in any amounts he selects,” and that applying the major questions doctrine, the principal opinion rightly rejects that argument.
A 2026 Tax Foundation analysis estimated that the IEEPA tariffs had raised more than $160 billion for the federal government through February 20, 2026, and would have raised $1.4 trillion from 2026 through 2035, with the ruling shielding US taxpayers from that major tax increase and erasing nearly three-fourths of the new tax revenue the Trump administration had hoped to raise.
Trump’s Response
Trump said from the White House briefing room: “The Supreme Court’s ruling on tariffs is deeply disappointing, and I’m ashamed of certain members of the court, absolutely ashamed for not having the courage to do what’s right for our country.”
Following the February 20 ruling, President Trump issued an executive order terminating the additional duties previously imposed under IEEPA, consistent with the Supreme Court’s ruling, and then issued a proclamation invoking Section 122 of the Trade Act of 1974 to impose a “temporary” 10% ad valorem duty on most goods entering the United States.
The Refund Program: Scale, Mechanics, and Speed
The Supreme Court’s decision left the question of refunds explicitly unresolved. Though the IEEPA-based tariffs were ruled unlawful, the Supreme Court remanded decisions on how to handle refunds of previously paid tariffs to the lower courts.
On March 4, 2026, Judge Richard K. Eaton of the US Court of International Trade directed CBP to refund the IEEPA tariffs. As of that date, more than 330,000 importers had made more than 53 million entries subject to IEEPA tariffs, and CBP had collected approximately $166 billion in IEEPA duties. CBP Commissioner Brandon Lord said the agency would need to develop new functionality to “streamline and consolidate refunds and interest payments on an importer basis, rather than issuing 53,173,939 separate entry-specific refunds with multiple payments going to the same importer.”
Phase 1 of the Consolidated Administration and Processing of Entries (CAPE) for IEEPA refunds was activated on April 20, 2026. Phase 1 is expected to cover approximately 63% of affected entries, representing nearly $127 billion of the $166 billion total. Phase 2, said to begin late June 2026, aims to refund reconciliation entries, where the IEEPA duty is allocated across different entry dates or periods and must be reconciled by CBP.
The May and June Surge
June refunds were more than double the $22 billion returned in May, which had resulted in a slight outflow of $42 million. Together, refunds issued during May and June totaled around $71 billion. As of June 29, CBP had authorized $104.29 billion in refunds and paid out $71.06 billion, including interest.
In June alone, the Treasury reported gross customs duty collections of $23.6 billion but refunds of $49.2 billion, resulting in a net outflow of $25.6 billion for the month.
Fiscal Impact: The Budget Reversal
The wave of refund payments caused the first widening in the US federal budget deficit since the start of this fiscal year.
The June 2026 deficit of $120 billion marked a sharp reversal from the $27 billion surplus reported in June 2025, which the administration had touted as evidence of tariff success. For the first nine months of fiscal year 2026, the federal budget deficit reached $1.367 trillion, an increase of $29 billion, or 2%, compared with the same period in the previous fiscal year, with government receipts up 4% to $4.151 trillion and total spending up 3% to $5.518 trillion.
Net Customs Revenue: Still Above Prior Year, for Now
Despite the refund surge, the overall customs picture for fiscal 2026 has not yet gone entirely negative, largely because tariffs collected before the IEEPA regime was shut down were substantial. Fiscal year-to-date customs receipts after refunds totaled $163 billion, compared to $108 billion in the same period of fiscal 2025.
Total federal spending rose 3% for the fiscal year to date, propelled by bigger outlays on Social Security, Medicare, Medicaid, and interest payments on the debt.
The Administration’s Tariff Reconstruction
The White House did not wait. Within hours of the Supreme Court ruling, it moved to replace the IEEPA framework with a different legal authority.
Hours after the court’s decision, Trump announced across-the-board tariffs of 10% under Section 122 of the Trade Act of 1974, which allows temporary across-the-board tariffs when the United States has “large and serious balance-of-payments deficits,” and the next day boosted those to 15%, the maximum level permitted under that statute.
Section 122: The Stopgap
Section 122 tariffs imposed a 10% “temporary import surcharge” on products of all countries, effective February 24, 2026, for 150 days (until July 24, 2026), unless modified, terminated, or extended by Congress. On May 7, a divided Court of International Trade panel ruled the surcharge unlawful, finding that the proclamation cited trade deficits and current-account shortfalls, not the specific balance-of-payments metrics the statute requires. That ruling is under appeal and tariffs continue to be collected in the interim.
The 150-day clock built into Section 122 was always the administration’s central problem. Any extension requires members of the House and Senate to take a recorded vote on tariff policy just months before the 2026 midterm elections.
The Longer Game: Sections 232 and 301
The administration has moved to reconstruct the tariff wall through an expanded use of Sections 301 and 232. While existing Section 232 tariffs remain in place, it has launched two major Section 301 investigations: one into structural manufacturing overcapacity covering sixteen countries and more than 75% of US imports, and another into forced-labor enforcement practices across sixty economies, covering nearly all US imports.
Unlike Section 122, Section 301 has no rate cap and no time limit, making it the administration’s preferred instrument for a durable tariff framework. The Tax Foundation estimates that Section 232 and Section 122 tariffs combined will raise $956 billion in revenue from 2026 to 2035 on a conventional basis, while the Section 232 tariffs are projected to reduce long-run US GDP by 0.2%. The administration also has ongoing Section 232 investigations that could lead to additional tariffs in 2026 covering pharmaceuticals, pharmaceutical ingredients, and medical devices.
The Broader Constitutional Significance
By a vote of 6-3, the justices ruled that the tariffs exceeded the powers given to the president by Congress under a 1977 law providing him the authority to regulate commerce during national emergencies created by foreign threats. The ruling re-drew a boundary between executive emergency powers and Congress’s exclusive constitutional authority over taxation.
CNN’s Supreme Court analyst Steve Vladeck, a professor at Georgetown University Law Center, noted that while the court had ruled in dozens of Trump administration cases, “those all involved emergency applications; this was the first Trump-related case to which the Court gave full review, and it’s an overwhelming loss for Trump on both the specific legal question and the more general ability to broadly use statutes like IEEPA.”
The tariffs decision stands as the most significant legal defeat Trump has suffered since returning to the White House, coming as the Supreme Court prepares to rule on other contentious initiatives, including his efforts to curb birthright citizenship and remove a member of the Federal Reserve’s board.
The ruling also carries international dimensions. The European Union, America’s largest commercial partner, expressed relief at the Supreme Court’s finding that Trump exceeded his authority under IEEPA. Trade partners who had negotiated bilateral agreements under threat of IEEPA-backed tariffs now face uncertainty about whether those agreements retain their leverage, as the legal foundation for the conditional tariff rate ceilings has dissolved.
Key Takeaways
The $81 billion in Trump tariffs refunds now flowing back to importers is not simply a legal footnote to a policy reversal. It is a live fiscal event reshaping the 2026 budget, and the numbers are still moving. Refunds could eventually climb to $130 billion of the $166 billion in IEEPA duties paid by importers before interest, meaning the current outflow represents roughly half the potential total exposure, with more claims still being processed.
Entries from early in the tariff period are already expiring, and once a window closes on an entry, eligibility for a refund is permanently lost. To support potential refund claims, importers should identify all entries subject to IEEPA tariffs, confirm liquidation status, gather entry summaries and proof of payment, and monitor filing deadlines. The refund portal is operational, payments include interest, and CBP has confirmed payments are reaching importers. The tariff environment, however, is not stable: the outcome of ongoing legal challenges, the pace of additional refunds, and the Section 301 investigations now covering sixty economies and proposing 12.5% baseline duties will all shape what comes next.
The Price of Overreach
The $81 billion already returned to importers is money that was collected under a legal theory that eight out of the nine justices who reviewed it found unconstitutional. It passed through CBP, landed in the Treasury, was spent, and now has to be clawed back from a government running a $1.367 trillion deficit.
The IEEPA tariffs were never subject to congressional debate, a public comment period, or an industry investigation. They were imposed fast, collected fast, and are now being returned fast, except “fast” at this scale means months of bureaucratic processing, a new custom-built government portal, and more than 53 million individual shipment entries that each have to be unwound. The federal government has never had to issue tariff refunds on anything approaching this scale before.
The administration’s pivot to Section 301 may eventually produce a durable tariff framework, and the fiscal hole left by the refunds may prove temporary. But the constitutional question the Supreme Court settled will not be reversed. Tariff power belongs to Congress. The president cannot impose sweeping import duties unilaterally under an emergency declaration, regardless of the economic rationale. Every future tariff initiative will now be measured against that standard, and the $81 billion already returned to importers is the permanent, numbered record of what happens when that line is crossed.
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AI Disclaimer: This article was created with the assistance of AI tools and reviewed by a human editor.