The Internal Revenue Service is entering the 2026 tax filing season under dramatically different circumstances than recent years, facing substantial budget cuts and workforce reductions that have experts warning of potential delays, service disruptions, and processing challenges. For the approximately 164 million Americans who will file tax returns this year, understanding how these IRS budget cuts may affect processing times, refunds, and customer service is crucial for planning and managing expectations.

In this comprehensive guide, we'll examine the scope of recent IRS budget cuts, analyze their potential impact on tax processing and services, explore what taxpayers can expect during the 2026 filing season, and provide actionable strategies to minimize delays and protect your interests as the agency navigates these unprecedented challenges.

The Scale of IRS Budget Cuts: Understanding the Numbers

The IRS has experienced dramatic funding reductions over the past year, reversing the significant investment provided through the 2022 Inflation Reduction Act and imposing additional cuts through annual appropriations.

From Inflation Reduction Act to Budget Cuts

The 2022 taxpayeradvocate.irs.gov initially provided the IRS with approximately $80 billion in additional funding over 10 years, with significant portions allocated to enforcement, technology modernization, and taxpayer services. However, much of this funding has since been rescinded through subsequent legislation.

Funding rescissions:

• Previous rescissions eliminated substantial portions of IRA funding
• The One Big Beautiful Bill Act includes an $11.66 billion rescission of IRS operations funding
• The Congressional Budget Office tax.thomsonreuters.com by $38.6 billion from 2026-2035 due to reduced enforcement actions

2026 Appropriations: Further Reductions

Beyond rescinding previously allocated funds, the IRS faces additional cuts through the annual appropriations process. A cnbc.com proposes providing the IRS with $11.2 billion for the remainder of fiscal year 2026—approximately 9% lower than the 2025 budget of $12.3 billion.

More specifically, the enforcement budget faces particularly steep reductions, with the fiscal year 2026 appropriations bill cutting enforcement funding to $4.999 billion—nearly half a billion dollars short of the fiscal year 2025 operating plan, according to tax.thomsonreuters.com.

Workforce Reductions: The Human Impact

Budget cuts translate directly into workforce reductions that affect the IRS's ability to serve taxpayers. The numbers are staggering:

IRS staffing changes:

• Started 2025 with approximately 102,000 employees
• Finished 2025 with approximately 74,000 employees
• Total reduction: 28,000 employees (27%)
• Reductions affected virtually all IRS functions including taxpayer services, enforcement, and technology

According to the irs.gov, these staffing losses create significant challenges for assisting taxpayers who encounter problems during the filing season.

The reductions included 17% to 19% cuts to key IRS functions critical for filing season operations, according to a cnbc.com (TIGTA).

How Budget Cuts Affect IRS Operations and Tax Processing

The combination of reduced funding and workforce creates cascading effects across all IRS operations, with direct implications for taxpayers filing returns in 2026.

1. Tax Return Processing Delays

The most immediate concern for taxpayers is potential delays in processing tax returns, particularly those filed on paper or containing errors that require manual intervention.

Processing capacity concerns:

Electronic returns: The IRS processed approximately 94% of returns electronically in 2025, with these typically processed within 21 days. Electronic filing with direct deposit generally proceeds smoothly even with reduced staffing, as automated systems handle most processing.

Paper returns: Approximately 6% of returns (11 million) were filed on paper in 2025. Paper returns require manual processing and typically take 6-8 weeks under normal circumstances. With reduced staffing, these timeframes could extend significantly.

Error resolution: Returns flagged for errors, inconsistencies, or additional review require human intervention. With fewer employees available, the backlog of returns needing manual review could grow substantially.

According to cnbc.com, the IRS started the 2026 filing season with thousands of unprocessed tax returns and taxpayer correspondence from previous years—creating an immediate backlog that compounds current-year processing challenges.

What this means for taxpayers: The National Taxpayer Advocate irs.gov should receive refunds without delay, "the success of the filing season will be defined by how well the IRS is able to assist the millions of taxpayers who experience problems."

2. Refund Delays and Payment Processing

Refund timing is a critical concern for the 104 million taxpayers (63%) who received refunds in 2025, with an average refund amount of $3,167.

Current refund statistics:

• Most e-filed returns with direct deposit: Within 21 days
• Paper-filed returns: 6-14 weeks (potentially longer in 2026)
• Returns flagged for review: Variable timeframes, potentially several months

The National Taxpayer Advocate's report notes that approximately 3.6 million taxpayers received refunds beyond the IRS's normal processing time in 2025, with average wait times of 7 weeks for e-filers and 14 weeks for paper filers experiencing delays.

Factors that may delay your 2026 refund:

• Filing paper returns instead of electronic
• Claiming new deductions (tips, overtime, auto loan interest) that require additional verification
• Math errors or incomplete information
• Identity verification requirements
• Amended returns from previous years
• Claiming credits like Earned Income Tax Credit that face additional scrutiny
• Prior-year tax debts that result in refund offsets

3. Customer Service Challenges

Budget and workforce cuts directly impact the IRS's ability to provide phone support, respond to correspondence, and assist taxpayers navigating complex issues.

Customer service metrics:

In recent years with adequate staffing, the IRS answered approximately 85-90% of calls during filing season. However, with 27% workforce reduction, phone service is expected to deteriorate significantly.

Anticipated customer service challenges:

• Longer hold times (potentially hours instead of minutes)
• Lower percentage of calls answered
• Reduced availability of live assistance
• Slower response to written correspondence
• Limited in-person assistance at Taxpayer Assistance Centers

Janet Holtzblatt of the Urban-Brookings Tax Policy Center pbs.org that "buckle your seatbelts. This is going to be a bumpy filing season," specifically citing concerns about the IRS's ability to assist taxpayers encountering problems.

4. Enforcement and Audit Activity Changes

While most taxpayers welcome reduced audit risk, decreased enforcement has broader implications for tax compliance and government revenue.

Enforcement trends:

Holtzblatt predicts tax.thomsonreuters.com, with "efforts to expand enforcement for complicated returns pretty much stalled." Instead, she expects enforcement to focus on:

• Taxpayers with invalid Social Security numbers
• Information-based enforcement using data provided by Immigration and Customs Enforcement
• Correspondence audits (lower-cost mail-based audits instead of in-person examinations)
• Automated enforcement for clear-cut discrepancies

What this means: Sophisticated taxpayers with complex returns may face reduced scrutiny, while enforcement focuses on easier-to-identify issues and vulnerable populations. This creates equity concerns and potentially increases the tax gap (difference between taxes owed and taxes collected).

5. Technology Modernization Delays

Budget cuts threaten ongoing IRS technology modernization efforts that aim to improve efficiency, security, and taxpayer experience.

cnbc.com warned that "completing IT modernization projects, providing quality service to taxpayers, and enforcing tax laws with a reduced workforce and budget will be challenging for the IRS."

Modernization areas at risk:

• Digital document processing to eliminate paper backlogs
• Enhanced online account features
• Improved data security systems
• Taxpayer communication platforms
• Case management systems

Delays in modernization perpetuate inefficiencies that require more human resources to compensate—creating a vicious cycle where budget cuts prevent efficiency improvements that could reduce the need for large workforces.

The 2026 Filing Season: Special Challenges

The 2026 tax filing season, which pbs.org, presents unique complications beyond budget and staffing issues.

Implementation of New Tax Law Changes

The IRS must simultaneously implement significant new tax provisions from the One Big Beautiful Bill Act while dealing with reduced resources—creating what experts describe as a perfect storm of challenges.

New provisions requiring implementation:

• No tax on tips deduction
• No tax on overtime deduction
• Auto loan interest deduction
• Enhanced Child Tax Credit
• Senior deduction ($6,000 for taxpayers 65+)
• Increased SALT deduction cap
• Trump Accounts for children

Holtzblatt notes that these provisions involve irs.gov that will be difficult for taxpayers to understand and for the IRS to administer accurately during the filing season.

Guidance gaps: Many new deductions cnbc.com, creating confusion for taxpayers and preparers about proper reporting and eligibility requirements.

Waived Reporting Requirements Create Compliance Challenges

To facilitate implementation of new provisions, the IRS irs.gov for 2025, particularly regarding tips and overtime income. However, these waivers primarily benefit businesses and employers—not individual taxpayers claiming the deductions.

Holtzblatt warns that the "lack of reporting requirements is really going to leave it in the hands of the taxpayer and perhaps their preparer, who's also perhaps confused by this." This creates opportunities for errors, which may trigger:

• Processing delays while the IRS investigates claims
• Requests for additional documentation
• Potential audits
• Disallowance of improperly claimed deductions

Impact on Different Taxpayer Categories

Budget cuts and processing challenges don't affect all taxpayers equally. Understanding your risk profile helps you prepare appropriately.

Low-Risk Taxpayers (Likely Minimal Impact)

Characteristics:

• File electronically with direct deposit
• Claim standard deduction
• Have straightforward W-2 income
• Don't claim complex credits or deductions
• Have no prior-year issues

Expected experience: These taxpayers should receive refunds within the standard 21-day timeframe with minimal disruption, as automated systems handle their returns efficiently.

Medium-Risk Taxpayers (Potential Delays)

Characteristics:

• Claim new deductions (tips, overtime, auto loan interest)
• File paper returns
• Have multiple income sources
• Claim Earned Income Tax Credit or Additional Child Tax Credit
• Itemize deductions

Expected experience: These taxpayers may experience processing delays ranging from a few weeks to several months, particularly if their returns are flagged for review or contain errors requiring correction.

High-Risk Taxpayers (Significant Challenges Expected)

Characteristics:

• File amended returns
• Have complicated tax situations requiring IRS assistance
• Need to resolve prior-year issues
• Face correspondence from the IRS
• Experience identity theft or fraud issues

Expected experience: These taxpayers are most likely to face significant delays, difficulty reaching IRS representatives, and extended resolution timeframes for complex issues.

Strategies to Minimize Delays and Protect Your Interests

While you can't control IRS budget constraints, you can take proactive steps to minimize the impact on your tax filing experience.

1. File Electronically with Direct Deposit

The single most important action you can take is filing electronically and providing direct deposit information for your refund.

Benefits of e-filing:

• Automated processing typically completed within 21 days
• Immediate confirmation that IRS received your return
• Built-in error checking catches mistakes before submission
• Faster refund delivery through direct deposit
• Reduced risk of processing delays

Implementation: Use IRS Free File (available for incomes up to $79,000), commercial tax software, or a tax professional who e-files. Always choose direct deposit rather than paper checks.

Important note: Beginning in 2026, the IRS is taxpayeradvocate.irs.gov. If you don't provide direct deposit information or if your direct deposit is rejected, the IRS will temporarily freeze your refund until you provide valid banking information or request a paper check waiver through your irs.gov.

2. Double-Check Your Return for Accuracy

With reduced IRS staff available to assist with error resolution, preventing errors in the first place is crucial.

Common errors to avoid:

• Incorrect Social Security numbers
• Misspelled names (must match Social Security card exactly)
• Math errors in calculations
• Missing signatures (for paper returns)
• Incorrect bank account or routing numbers for direct deposit
• Forgetting to report all income sources
• Claiming ineligible dependents

Strategy: Use tax software with error-checking features, review your return multiple times before filing, and consider having a second person review it for accuracy.

3. Gather Complete Documentation for New Deductions

If you're claiming new deductions for tips, overtime, or auto loan interest, comprehensive documentation is essential.

Documentation checklist:

For no tax on tips:

• Complete records of all tip income (cash and credit card)
• Pay stubs showing tip income separately from regular wages
• Tip logs or documentation of tip-sharing arrangements
• Employer verification of occupation and tip income

For no tax on overtime:

• Pay stubs clearly identifying overtime hours and pay
• Employer certification of hourly status and overtime work
• Time records showing hours worked beyond 40 per week

For auto loan interest:

• Form 1098 from lender showing interest paid
• Vehicle identification number (VIN)
• Proof of American manufacturing
• Purchase documentation

Strategy: Organize all documentation before filing and keep copies for at least three years in case of audit or IRS questions.

4. File Early to Avoid Backlogs

Filing early in the season, when processing capacity is highest and backlogs are smallest, increases your chances of timely processing.

Benefits of early filing:

• Get ahead of potential system slowdowns
• Reduce identity theft risk (fraudsters can't file in your name if you file first)
• Receive refunds sooner
• Have more time to resolve any issues that arise

Strategy: Gather tax documents (W-2s, 1099s, etc.) as soon as they arrive in January and file as early as possible after the January 26 opening date.

5. Use IRS Online Tools and Resources

With phone service expected to be particularly challenging, maximize use of IRS online resources that don't require human interaction.

Essential online tools:

Where's My Refund: Track your refund status 24 hours after e-filing or 4 weeks after mailing a paper return at irs.gov.

IRS Online Account: Access your tax records, view payment history, make payments, and update direct deposit information at irs.gov.

Get Transcript: Download tax return transcripts for previous years, which may help resolve issues without calling the IRS.

Interactive Tax Assistant: Get answers to common tax questions without waiting on hold.

Strategy: Create your IRS Online Account now (before you need it) and bookmark essential tools for quick access throughout filing season.

6. Consider Professional Tax Preparation

Given the complexity of new provisions and limited IRS assistance availability, professional tax preparation may be worth the investment for many taxpayers.

When professional help is advisable:

• You're claiming new deductions with unclear guidance
• You have complex income sources or deductions
• You've experienced identity theft or prior-year issues
• You're self-employed or have rental income
• You're uncomfortable navigating tax software

Cost considerations: Professional preparation typically costs $150-$500+ depending on complexity, but may save more than it costs by preventing errors, maximizing deductions, and avoiding delays.

Strategy: Choose tax professionals with credentials (CPA, Enrolled Agent, or attorney), check their IRS PTIN (Preparer Tax Identification Number) at irs.gov, and ask about their experience with new 2025 provisions.

7. Maintain Realistic Expectations and Patience

Perhaps the most important strategy is simply being prepared for potential delays and challenges.

Realistic expectations:

• Simple returns will likely process normally
• Complex situations may take significantly longer
• Phone support will be difficult to access
• Resolution of issues may require weeks or months
• Some new deduction claims may face scrutiny

Strategy: Don't plan major financial decisions around receiving your refund by a specific date. Build cushion into your finances to accommodate potential delays, and prepare for the possibility of needing to wait longer than in previous years.

8. Adjust Withholding to Avoid Large Refunds

If you consistently receive large refunds, consider adjusting your W-4 withholding to keep more money in your paycheck rather than giving the government an interest-free loan.

Benefits:

• Reduces dependence on refund timing
• Provides cash flow throughout the year
• Minimizes impact of processing delays

How to adjust: Use the irs.gov to calculate appropriate withholding and submit a new W-4 to your employer.

Caution: Ensure you withhold enough to avoid underpayment penalties. The goal is a small refund or small amount owed—not a large tax bill.

What to Do If You Experience Problems

Despite taking all precautions, some taxpayers will inevitably encounter issues requiring IRS assistance. Here's how to navigate problems in the budget-constrained environment:

1. Exhaust Self-Service Options First

Before attempting to contact the IRS by phone, thoroughly explore online resources and self-service tools that may resolve your issue without requiring human interaction.

2. Use the Taxpayer Advocate Service for Significant Problems

If you're experiencing significant hardship due to IRS processing delays or errors, the taxpayeradvocate.irs.gov (TAS) can provide assistance.

When TAS can help:

• You're facing immediate financial hardship
• You've tried repeatedly to resolve an issue without success
• The IRS hasn't responded within promised timeframes
• You need assistance navigating IRS systems

3. Document Everything

Keep detailed records of all interactions with the IRS, including:

• Dates and times of phone calls
• Names and ID numbers of representatives
• Content of conversations
• Copies of all correspondence
• Tracking numbers for mailed documents

Documentation helps escalate issues and protects your interests if disputes arise.

4. Be Persistent but Patient

Resolving complex issues may require multiple contacts and extended timeframes. Continue following up systematically while recognizing that IRS employees are dealing with unprecedented workload pressures.

The Bigger Picture: Long-Term Implications

Beyond immediate 2026 filing season concerns, IRS budget cuts have broader long-term implications for tax administration and public policy.

Revenue Collection Concerns

Reduced enforcement capacity directly impacts government revenue. The Congressional Budget Office estimates the $11.66 billion IRS funding rescission will tax.thomsonreuters.com over ten years—a negative return on investment of more than 3-to-1.

This creates fiscal challenges as the government balances tax cuts with spending priorities and deficit reduction goals.

Equity and Fairness Issues

When enforcement focuses on easy-to-detect issues rather than complex tax avoidance strategies used by wealthy taxpayers, it creates equity concerns. Middle and lower-income taxpayers may face scrutiny while sophisticated tax avoidance goes unchecked.

Service Quality Degradation

Prolonged underfunding risks creating a permanently degraded IRS that cannot serve taxpayers effectively, damaging voluntary compliance and public trust in the tax system.

Technology Modernization Setbacks

Delaying modernization perpetuates inefficiencies that require larger workforces and higher costs—exactly opposite the long-term efficiency improvements that strategic investment could achieve.

Looking Ahead: What Comes Next

The 2026 filing season will serve as a critical test of whether the IRS can maintain acceptable service levels despite dramatic resource constraints. Results will inform future budget and policy decisions.

Possible outcomes:

Scenario 1 - Relatively smooth season: If the IRS successfully processes most returns without major disruptions, it may validate claims that the agency was previously overstaffed and justify continued budget restraint.

Scenario 2 - Significant problems: If widespread delays, poor customer service, and processing failures create taxpayer anger and media attention, it could trigger calls for emergency funding restoration.

Scenario 3 - Mixed results: Most likely, simple returns will process acceptably while complex situations face significant challenges—creating a two-tiered experience that highlights the consequences of underfunding.

Conclusion: Navigating Tax Season in the Age of IRS Budget Cuts

The 2026 tax filing season presents unprecedented challenges as the IRS attempts to serve 164 million taxpayers while implementing complex new tax provisions with dramatically reduced resources. While most taxpayers filing simple returns electronically should experience minimal disruption, those facing complex situations or requiring IRS assistance may encounter significant delays and frustrations.

The key to successfully navigating this environment is preparation, documentation, realistic expectations, and strategic use of available resources. By filing electronically with direct deposit, ensuring accuracy, gathering complete documentation, using online tools, and maintaining patience, you can minimize the impact of IRS budget constraints on your personal tax situation.

Beyond individual strategies, the 2026 filing season serves as an important reminder of the critical role adequate IRS funding plays in maintaining an effective, fair tax system. The results of this filing season will likely shape future debates about appropriate IRS funding levels and the balance between budget restraint and effective government services.

As you prepare your 2025 tax return, remember that while the IRS faces challenges, millions of returns will still be processed successfully. Take proactive steps to ensure yours is among them, and advocate for adequate IRS funding to ensure efficient, fair tax administration for all Americans in future years.

Stay informed, plan strategically, and approach the 2026 filing season with both preparation and patience—the combination most likely to deliver successful outcomes despite the challenging circumstances.