Report Warns IRS Staffing Reductions May Impact 2026 Tax Season

Following a strong 2025 tax season, the Internal Revenue Service (IRS) is now facing operational challenges that could affect the upcoming 2026 filing season. A recent report from the National Taxpayer Advocate highlights significant staffing reductions across the agency, which may lead to slower processing times, reduced customer service capacity, and delays in implementing tax law changes—particularly if new legislation is passed.

A Notable Shift in IRS Staffing

Over the past several months, the IRS workforce has decreased by more than 25%. This reduction follows a series of voluntary buyouts offered to employees earlier in the year. The agency had previously expanded to around 102,000 employees through a hiring initiative aimed at improving enforcement and service functions. The recent departures, however, affect a wide range of departments, from information technology to taxpayer services.

Key areas impacted include:

Information Technology

More than 2,000 IT employees—over a quarter of the IRS’s technology team—have left. This could limit the agency’s ability to update systems and implement programming changes required to reflect new or modified tax laws.

Small Business Services

The IRS division responsible for handling small business tax matters has seen a 35% reduction in staff, decreasing from over 24,000 to fewer than 16,000 employees. This may result in slower response times for small business inquiries and support.

Strategic and Modernization Units

Offices overseeing IRS modernization efforts, including the Enterprise Case Management system, have also experienced substantial staff reductions. Some of these units now operate with fewer than 20% of their original workforce, potentially affecting long-term initiatives aimed at improving operational efficiency.

Taxpayer Services

This unit, which provides direct support to taxpayers through phone and in-person assistance, has seen a reduction of more than 20% in staffing. These roles are central to handling taxpayer questions and issues during filing season.

Strong 2025 Season Performance

Despite the current challenges, the IRS reported solid performance for the 2025 filing season. According to agency data:

• 98% of tax returns were processed on time
• The backlog of unprocessed returns decreased to 3.8 million, down from 7.6 million the previous year
• Over 12 million phone calls were answered, with average wait times of 8 minutes and just 2 minutes on the most-used helpline

These outcomes reflected improved service and efficiency, but maintaining this level of performance could prove difficult with reduced staffing.

New Legislation Could Add Complexity

Congress is currently considering major tax legislation, including the proposed “One Big Beautiful Bill Act.” If enacted, several provisions would apply retroactively to the 2025 tax year, which could require the IRS to update tax forms, systems, and guidance before the 2026 filing season begins.

Historically, significant changes to tax law increase the volume of taxpayer inquiries and place additional pressure on IRS systems and personnel. Implementing these updates under current staffing levels may result in delays or service disruptions.

Hiring Freeze Limits Response Options

A federal hiring freeze remains in place, which restricts the IRS from replacing departed employees or onboarding new hires to support the 2026 filing season. While earlier budget plans anticipated only modest staffing reductions, the agency has experienced larger-than-expected attrition, especially within its customer service teams.

Training new staff typically requires several months. With the filing season approaching, the window for hiring and preparing new employees is narrowing.

What This Means for Taxpayers and Advisors

The combination of staffing reductions, potential tax law changes, and hiring constraints may lead to a more challenging tax season in 2026. Taxpayers and professionals should be prepared for the following:

• Longer wait times for IRS assistance by phone or in person
• Potential delays in return processing, especially for paper filings or those impacted by new legislation
• Increased complexity in filing if retroactive tax law changes are enacted

Planning Ahead with LMC

LMC is closely monitoring developments at the IRS and in Congress to help clients navigate the potential impact of these changes.

For more information or questions, please reach out to your LMC professional.