The IRS opened its 2026 tax filing season Monday as the agency faces a potential government shutdown Friday and steep workforce reductions that threaten to disrupt refunds and taxpayer assistance for 164 million expected returns.
Annual funding for the agency expires after midnight January 30, at which point employees would be furloughed or required to work without pay. A shutdown would hit an IRS already dealing with leadership turnover, staff cuts approaching 20%, and complex new tax code changes—all as millions of taxpayers start filing returns due April 15.
“We would be in uncharted territory,” said Andrew Lautz, director of tax policy for the Bipartisan Policy Center. “We don’t know exactly how the agency would respond.”
New Tax Breaks Add Complexity
This filing season introduces provisions from last year’s tax law that allow deductions for tips, overtime pay, and car loan interest. The changes have taken on political significance as Republicans tout promises of larger refunds.
The new $12,500 deduction for overtime pay includes eligibility requirements likely to prompt taxpayer questions, according to Alex Muresianu, senior policy analyst for the Tax Foundation. A deduction for car loan interest on vehicles purchased in 2025 also comes with restrictions taxpayers must navigate.
Expanded eligibility for a 20% deduction for pass-through business owners could drive more people to contact the IRS for guidance, said Pete Sepp, president of the National Taxpayers Union.
“There’s already a baseline of potential difficulty in the tax season to begin with,” Muresianu said, citing staff cuts and new provisions. “There might be more people that have questions this year than in other years.”
Workforce Down Nearly 20%
The IRS has lost nearly a fifth of its staff since October 2024, according to a Treasury Inspector General for Tax Administration report released Monday. Staffing in roles critical to filing season operations has dropped 17%.
The agency had hired and fully trained only 2% of the 2,200 approved positions dedicated to processing returns by the end of 2025. Changes in Treasury hiring processes and last year’s 43-day shutdown delayed training of seasonal employees.
The workforce reductions come as the IRS faces a processing backlog of 2 million filings heading into this season—129% higher than pre-pandemic levels. The backlog includes amended returns and taxpayer correspondence.
National Taxpayer Advocate Erin Collins said the agency has lost 27% of its workforce since the start of the Trump administration. The IRS has also cycled through seven commissioners in the past year.
Phone Support Already Limited
The IRS lowered its goal for answering phone calls during filing season from 85% to 70%, according to the inspector general’s report. For taxpayers who need to reach the agency with questions about the new tax provisions, wait times could stretch significantly longer if the government shuts down.
“For anyone who needs to reach a real-life human being at the Service with a tax question or inquiry, I mean, they could be out of luck,” Sepp said. “Pack a lunch and make a day out of it because it could take that long.”
Electronic filers without errors or questions should see minimal disruption, Sepp said. The IRS claims to issue refunds to most taxpayers within 21 days of filing, though experts expect refunds to land on the “outer edge” of that range during a shutdown.
Funding Cuts and Political Pressure
The shutdown threat comes as Congress debates IRS funding levels. The House passed bills cutting the agency’s budget by $1.1 billion to $11.2 billion for fiscal 2026, down from $12.3 billion in fiscal 2025.
The legislation also rescinds $11.6 billion to $11.7 billion in enforcement funding from the Inflation Reduction Act. Since 2022, Congress has clawed back more than $53 billion of the $80 billion the IRA originally provided to the IRS.
The Congressional Budget Office estimates the enforcement cuts will result in $38 billion in lost revenue over 10 years. In fiscal 2024, the IRS collected $5.1 trillion on a $12.3 billion budget—a return of $415 for every dollar spent.
The proposed cuts would reduce enforcement funding to under $5 billion annually for the first time since fiscal 2021. Remaining Inflation Reduction Act funds of roughly $7 billion may offset some impacts, but workforce losses continue.
What Happened in 2019
During a 35-day shutdown in Trump’s first term that ended just before the 2019 filing season, the IRS furloughed just under half its staff and required the rest to work without pay. The disruption hobbled preparation and resulted in refund delays.
Experts said they expect a larger portion of staff to continue working during a filing season shutdown compared to 2019. But experience with air traffic controllers and TSA agents shows federal workers may work slower or have more absences when pay stops.
Lautz said it was “too early to tell” whether there would be delays to routine refunds. The timing of refunds tied to new tax breaks for tips and overtime wages is even more uncertain.
“We don’t have great insight yet into how Treasury and IRS are processing returns with tips and overtime deduction, matching them to employer information, and/or auditing a selection of those returns,” he said.
Technology May Help
Sepp said this filing season would likely run more smoothly than 2019 even with a shutdown, given greater reliance on tax preparation software and automation at the IRS.
“Seven years is an awfully long time in the IRS’ technological evolution,” Sepp said. “It’s only been in the past few years that the service has gotten better at automated processes.”
The IRS has updated its systems to handle the new deductions and requires barcodes on paper returns under legislation that passed committee unanimously. Most of the 164 million expected returns will be filed electronically.
Acting Commissioner Scott Bessent said the agency is “confident in our ability to deliver results.” CEO Frank Bisignano said the IRS is “well-prepared” with “a new team in place.”
What Taxpayers Should Do
The IRS opened electronic filing January 26. Taxpayers can check refund status 24 hours after e-filing through the Where’s My Refund? tool. Paper filers should expect four-week processing times.
Free File and Fillable Forms are available for eligible taxpayers. Military members can use MilTax. Those with complex returns involving the new deductions may want to consult tax professionals to avoid errors that could trigger audits or delays.
For non-urgent questions, taxpayers should use online resources through Individual Online Accounts rather than calling. Those who must reach the agency should expect significant wait times if the shutdown occurs.
The Treasury Department has not updated its contingency plans for a shutdown during filing season and did not respond to a request for details on how the agency would operate.
Source
Shutdown Threatens to Hit IRS as Trump Touts Massive Tax Refunds | Bloomberg