The U.S. deficit nears $2 trillion for fiscal 2026 as interest costs top $1 trillion

The U.S. government ended fiscal 2026 with a deficit of $1.992 trillion, the Treasury said Friday, as spending growth outpaced revenue, net interest costs passed $1 trillion for the first time and refunds of tariffs struck down by the Supreme Court cut into customs revenue.

A $2 trillion year

The federal government ran a deficit of $1.992 trillion in fiscal 2026, the Treasury Department said Friday in its final Monthly Treasury Statement for the year that ended Sept. 30. That was $217 billion wider than the $1.775 trillion gap in fiscal 2025.

Revenue rose 3.2% to $5.403 trillion. Outlays grew faster, up 5.5% to $7.396 trillion. In dollar terms, only the pandemic years of 2020 and 2021 produced larger deficits. The Congressional Budget Office, which published its own estimate of the year's results on Oct. 8, put the shortfall at about 6.2% of gross domestic product, up from 5.8% a year earlier.

To cover the gap and add to its cash balance, the Treasury borrowed a net $2.073 trillion from the public during the year, according to the statement.

Interest crosses $1 trillion

Net interest, the government's interest bill minus the interest it earns, reached $1.052 trillion, up from $970 billion a year earlier. That is the first time net interest has topped $1 trillion in a fiscal year, according to the Peter G. Peterson Foundation, a nonpartisan fiscal-policy group that tracks the monthly figures. Gross interest on Treasury securities, before netting out what the government collects, came to $1.360 trillion.

By function, net interest was the government's third-largest expense in fiscal 2026. Only Social Security, at $1.667 trillion, and Medicare, at $1.073 trillion, cost more. Interest outran national defense, at $965 billion, and the health category that includes Medicaid, at $1.026 trillion. Social Security spending rose $86 billion from the prior year and Medicare $76 billion.

How fast that bill grows depends partly on market rates. The 10-year Treasury yield ended Friday at 5.09%, according to the Treasury's daily par yield curve.

Tariff refunds drained customs revenue

Customs duties brought in a net $173.2 billion, down from $194.9 billion in fiscal 2025, even as tariffs collected at the border rose. Gross customs collections were $317.8 billion, but the Treasury paid out $144.6 billion in customs refunds, compared with $7.5 billion the year before. Net customs revenue was negative in May, June and July, when refunds exceeded new collections.

The refunds followed the Supreme Court's February ruling that tariffs imposed under the International Emergency Economic Powers Act were unlawful. The Bureau of Economic Analysis has estimated that the government owes affected importers about $166 billion, excluding interest. The CBO estimated that about $130 billion of that was paid out during fiscal 2026. A Treasury official said gross customs duties reached a record for the year, CNBC reported.

Corporate taxes fell as individual taxes rose

Individual income taxes, the government's largest revenue source, rose 7.1% to $2.846 trillion. Payroll taxes also increased. Corporate income taxes fell 15.6% to $381.4 billion from $452.1 billion. The CBO attributed the corporate decline to business tax changes in the One Big Beautiful Bill Act, including larger deductions for some business investment.

A September swing tied to timing

September alone showed a deficit of $26.9 billion, compared with a surplus of $197.9 billion in September 2025. Part of the swing reflects the calendar. The Treasury noted that veterans' benefit payments were shifted from Sept. 1, 2026 into August. The Peterson Foundation estimated that, after adjusting for shifted payments, the September deficit would have been $137 billion larger than a year earlier. Trading Economics said forecasts had called for a September deficit of about $29 billion.

What comes next

The Treasury will publish its first monthly statement for fiscal 2027, covering October, on Nov. 12. Refunds of the struck-down tariffs are not finished. Based on the BEA and CBO estimates, roughly $36 billion of eligible refunds had not been paid by the end of the fiscal year, so some of the cost is likely to land in fiscal 2027's numbers.