President Donald Trump’s advocated budget bill may make next year’s tax filing season more complex due to the reduction in IRS staff by as much as one-fourth because of staff reductions, according to a report from an independent watchdog released on Wednesday.
The report presented the first official figures on the decline in the IRS workforce from 102,113 employees to 75,702 in the past year. This drop is attributed to the administration’s efforts to downsize the federal government, leading to a significant number of probationary employees opting for buyouts through a program called “deferred resignation program.”
Most of the employees took the “fork in the road” resignation offer from DOGE rather than waiting to get laid off.
Some of the findings from the report:
Taxpayers will likely see effects of staffing reductions
Over 17,500 IRS employees chose to take this route, resulting in the largest cuts in departments like taxpayer services, small business/self-employed office, and information technology. The decrease in staff numbers is directly linked to Elon Musk’s Department of Government Efficiency.
The report noted that the Republican administration’s proposed budget includes a 20% reduction in IRS funding next year. That’s a 37% reduction when taking into account the supplemental funding in the Biden-era Inflation Reduction Act that Republicans previously stripped away.
“A reduction of that magnitude is likely to impact taxpayers and potentially the revenue collected,” wrote Erin M. Collins, who leads the organization assigned to protect taxpayers’ rights.
The 2026 tax season could be precarious
Collins said the 2025 filing season was “one of the most successful filing seasons in recent memory,” though she warned that the 2026 season could be rocky.
“With the IRS workforce reduced by 26% and significant tax law changes on the horizon, there are risks to next year’s filing season,” Collins wrote. “It is critical that the IRS begin to take steps now to prepare.”
She said that, halfway through the year, there were concerns that the IRS had not yet undertaken key preparation steps, including hiring and training seasonal and permanent employees.
Trump’s package could add new layer of problems
The report warned about the possibility of understaffing to manage new provisions from Trump’s legislative package if it’s enacted.
“Several provisions will retroactively affect the 2025 tax year, thus impacting millions of taxpayers and requiring the IRS to quickly update tax year 2025 tax forms and programming for the 2026 filing season,” the report said.
Specifically, the House bill retroactively prohibits the IRS from allowing or making payment of Employee Retention Credit claims filed after Jan. 31, 2024.
The report also said the IRS historically receives more calls in years following significant changes in tax law, so it may need additional employees and improved digital tools to maintain its level of service.
Identity theft cases are still piling up
The IRS is dealing with delays in resolving self-reported identity theft victim assistance cases — taking up to 20 months to resolve, the report said.
As of the end of the 2025 filing season, the IRS was handling about 387,000 of these cases.
That is a slight improvement from the more than 22 months it took to resolve identity theft cases, as noted in last year’s report, which outlined roughly 500,000 unresolved cases in its inventory.
“The cycle time remains unacceptably long,” Collins said. “I continue to urge the agency to focus on dramatically shortening the time it takes” to resolved identity theft cases, “so it does not force victims, particularly those dependent on their tax refunds, to wait nearly two years to receive their money.”
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