The US budget deficit in 2026 grew to $1.99 trillion in the fiscal year that ended September 30, the Treasury Department reported on Friday, a 12% jump from the $1.78 trillion shortfall a year earlier and the largest federal deficit in five years. The increase of $217 billion came in the first full budget year of President Donald Trump’s second term, and was fueled by record interest payments on a debt load topping $40 trillion and a wave of tariff refunds after the Supreme Court struck down much of Trump’s global tariff regime, according to the figures.

The shortfall is the largest since fiscal 2021’s $2.77 trillion pandemic-era gap and is the third-largest annual deficit in American history, Reuters reported, citing the Treasury figures. For the final month of the fiscal year alone, September brought a $27 billion deficit, compared with a $198 billion surplus in September 2025.

US budget deficit 2026 by the numbers

Measure	Fiscal 2026	Change from FY2025
Total budget deficit	$1.99 trillion	Up 12% ($217 billion)
Total receipts	$5.40 trillion (record)	Up 3% ($169 billion)
Total outlays	$7.40 trillion (record)	Up 6% ($386 billion)
Debt-service outlays	$1.36 trillion (record)	Up 12% ($144 billion)
Net tariff receipts	About $173 billion	Down 11% ($22 billion)
Deficit as share of GDP	6.2% (estimated)	Up from 5.8%

Friday’s release also marks the 25th consecutive year the United States has run a deficit; the last surplus was in 2001, according to The Fiscal Times.

How record debt-service costs drove the US budget deficit in 2026

The single biggest driver of the widening gap was the ballooning cost of servicing the nation’s debt. Debt-service outlays totaled a record $1.36 trillion, climbing by $144 billion — 12% — in one year, the Treasury figures showed. Interest payments are now eclipsed only by Social Security and the combined outlays for Medicare and Medicaid, Reuters reported.

Total US debt breached the $40 trillion milestone about two months ago, and Free Malaysia Today’s AFP-based coverage put the current load at $40.3 trillion. Interest costs on roughly $32 trillion in publicly held debt have been climbing as older borrowing is refinanced at higher rates, and rising bond yields have added to the pressure.

That pressure is filtering into the real economy. Treasury bond yields, which influence borrowing rates for mortgages and auto loans, have jumped this year, FMT reported, handing voters steeper borrowing costs just weeks before the November midterm elections.

The $145 billion tariff-refund hit

The other major driver was an expected revenue stream that failed to materialize. In February, the Supreme Court struck down a large portion of the tariffs President Trump had imposed during his first year in office, triggering a wave of refunds that deepened the shortfall.

Treasury data released Friday reflected $145 billion in customs refunds over the year — primarily tied to the tariffs — erasing much of the revenue gains from Trump’s duties, FMT reported. The result was a $22 billion drop in net tariff receipts, an 11% decline to about $173 billion, according to Reuters.

On the revenue side, the overall picture was mixed. Total receipts still hit a record $5.40 trillion, with individual income taxes contributing about $2.8 trillion and payroll taxes about $1.8 trillion, according to The Fiscal Times. But corporate income tax receipts fell by roughly $70 billion, which Treasury tied to tax cuts Congress passed last year, per coverage of the release.

Where the money went — and where it came from

Federal spending grew twice as fast as revenues. Outlays rose 6% to a record $7.40 trillion, up $386 billion from fiscal 2025. Social Security remained the single biggest expense at roughly $1.7 trillion, followed by Medicare at nearly $1.1 trillion, The Fiscal Times reported.

Continued increases in social benefits programs, along with a $48 billion jump in defense spending, also factored into the wider gap, Reuters reported. Treasury estimates put the deficit-to-GDP ratio at 6.2% for fiscal 2026, up from an actual 5.8% in fiscal 2025, a Treasury official said — though the official declined to say what GDP estimate was used.

What the record US budget deficit means for the November midterms

The timing of the release puts the deficit squarely in the midterm campaign spotlight. With the national debt above $40 trillion and rising yields already pinching borrowers, both parties are floating ideas that could widen the gap further.

Treasury Secretary Scott Bessent has argued the US can “grow our way out of” the debt pile, telling CNBC that global growth is the way to handle the mountain of debt. Bessent has previously set targets of bringing the deficit down to 3% of GDP while spurring 3% economic growth, FMT reported — roughly half the 6.2% ratio the Treasury now estimates for fiscal 2026.

Budget watchdogs warned the numbers demand a course correction. “America’s fiscal health is failing, and we need to take action to address it,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told The Fiscal Times.

Politically, the stakes are rising on both sides. FMT reported that Trump has promised $5,000 to every American adult if Republicans maintain control of Congress — a plan that would cost well over $1 trillion — while Democrats are looking to reverse Medicaid cuts and revive health care tax breaks. The budget figures land less than three weeks before voters decide which party controls Congress.

Economists say the trajectory is unusual: the deficit is surging to historic levels in the absence of a severe external strain such as a pandemic or recession, while the economy is growing at a decent clip. For more on how the November elections are shaping up, read our earlier coverage of the ballot measures voters will decide this November.

US budget deficit 2026: frequently asked questions

How big is the US budget deficit in 2026?

The federal deficit for fiscal year 2026 totaled $1.99 trillion, up 12% ($217 billion) from $1.78 trillion in fiscal 2025, according to Treasury Department figures released October 16. It is the largest deficit since fiscal 2021 and the third-largest in US history.

Why did the US budget deficit grow in 2026?
Two main forces widened the gap: record debt-service costs, which jumped $144 billion to $1.36 trillion as the government refinanced older borrowing at higher rates, and $145 billion in customs refunds after the Supreme Court struck down much of Trump’s global tariffs in February, cutting net tariff revenue 11%.

How much interest is the US paying on its debt?

Debt-service outlays hit a record $1.36 trillion in fiscal 2026, up 12% in a single year. Interest payments are now the third-largest category of federal outlays, exceeded only by Social Security and the combined Medicare and Medicaid programs, per Reuters.

When was the last US budget surplus?

The United States last ran a budget surplus in 2001. The fiscal 2026 shortfall is the 25th consecutive annual deficit, according to The Fiscal Times.