In Washington, the implications of President Donald Trump’s budget bill are beginning to surface, especially concerning next year’s tax filing season. A report unveiled by an independent watchdog on Wednesday highlighted a significant reduction in IRS staff, with the agency losing one-quarter of its workforce due to staffing cuts. The recent National Taxpayer Advocate report to Congress reveals that the IRS now operates with 75,702 employees, significantly down from its previous count of 102,113 workers. This reduction correlates with the policies of Elon Musk’s Department of Government Efficiency, which led most employees to resign under a “fork in the road” offer rather than face layoffs.
The report outlines concerns about how these staffing cuts will affect taxpayers. The Trump administration’s strategy of downsizing the federal bureaucracy has contributed to a wave of probationary employees opting for retirement buyouts via a “deferred resignation program.” This program saw more than 17,500 IRS workers exit, with the most substantial losses in taxpayer services, small business/self-employed offices, and IT.
The watchdog report cautions that the Trump administration’s proposed budget further threatens the IRS with a 20% funding reduction next year. Factoring in cuts from the previously boosted funding under the Biden-era Inflation Reduction Act, this translates to a 37% reduction in resources. Erin M. Collins, who spearheads the organization focused on taxpayer rights, emphasized that such reductions could significantly impact revenue collection and taxpayer services.
Looking ahead, Collins expresses concerns for the 2026 tax season, despite acknowledging the success of the 2025 filing season. She warns that with a 26% reduction in the workforce and looming substantial tax law changes, the upcoming filing season might face unprecedented challenges. She urged the IRS to initiate preparations now by recruiting and training new seasonal and permanent staff. Halfway through the current year, she noted the absence of essential preparatory measures.
The watchdog report also highlights potential issues if Trump’s legislative package is enacted, stressing the need for effective staffing to handle new provisions. These legislative changes, effective retroactively in 2025, might complicate the processing of tax returns, as the IRS would need to swiftly update tax forms and programming software for the 2026 season. Crucially, the House bill seeks to retroactively bar the IRS from allowing Employee Retention Credit claims after January 31, 2024.
IRS customer service may face increased demand following tax law changes, as history shows. To maintain service standards, the agency might need additional employees and upgraded digital tools to manage the anticipated increase in taxpayer inquiries.
On the issue of identity theft, the report describes the IRS’s considerable backlog and delays in resolving victim assistance cases. These cases currently take up to 20 months to conclude, with about 387,000 cases in progress at the end of the 2025 filing season. While slightly improved from the previous year’s 22-month average resolution time amid a stockpile of about 500,000 cases, the duration remains “unacceptably long,” according to Collins. She advocates for the IRS to shorten these timelines to relieve financial stress on victims, particularly those relying on tax refunds.