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IRS Layoffs Underway

ElitePersonalFinance
Last Update: March 24, 2025 • Financial News •

Much like the Department of Education and other federal agencies, the mid-March proposed 99-page funding bill also cuts down on Inflation Reduction Act money by cutting 20.2 billion in IRS funding, creating newfound fears of more layoffs that are estimated to cut roughly 50% of the IRS’s overall headcount.

“Conservatives will love this bill because it sets us up to cut taxes and spending in reconciliation, all while effectively freezing spending this year,” said President Donald Trump in a March 5 Truth Social post. “Let’s get this bill done.”

National Taxpayer Advocate (NTA) Division in Danger

Another widely scrutinized action by the Trump administration is cutting up to 25% of the staff of the National Taxpayer Advocate (NTA) division, an independent organization within the IRS.

The NTA is responsible for helping taxpayers resolve issues (especially those reporting financial hardship), addressing systemic problems, issuing annual reports to Congress on major issues and tax administration, providing direct assistance to its local offices, and assisting taxpayers on a regional level in navigating complex tax issues.

By the Numbers

Over the next decade, cuts are projected to reach as high as $46B, which raises concerns over how adequate the IRS’s operational capacity will be. Specifically, Americans now have newfound worries about how the IRS will process returns, issue refunds, enforce tax compliance, and keep the same service level.

They also feel that simplified tax codes will be more complex. According to a survey from marketing research firm Savanta, nearly 70% of all Americans want the IRS to simplify tax codes, with more than half reporting stressful tax preparation. Others are about to express concerns that maximizing deductions and credits is overwhelmingly tricky, made more complicated by the notoriously cumbersome process.

“Public confidence in the IRS’s ability to process tax returns is wavering as a result of the DOJ staff reductions,” said Head of Commercial in the Americas. “At the same time, many believe too little is spent on essential public services, highlighting a growing disconnect between taxpayers and how their money is managed.”

Although Congress passed a stopgap bill to keep the government funding, the bill also calls for a stoppage to the Inflation Reduction Act of 2022, which many fear will result in smaller revenue collections. In addition, the federal job cuts have also cut back on the IRS’s free tax filing programs like IRS Free File and Volunteer Income Tax Assistance (VITA), which initially started as a pilot program across 25 states, it was welcomed by American taxpayers looking to cut down on the use of TurboTax, H&R Block, CPAs, and other paid tax preparation services.

In addition, IRS enforcement efforts to combat tax evasion and fraud have raised concerns amongst American taxpayers. Since high-income earners are more likely to skirt tax law and cost the U.S. billions in lost revenue, arguably creating a gap between high income and low income taxpayers.

The IRS has worked diligently over the last several years to modernize its outdated tax systems, investing millions in new technology to reduce the likelihood of errors, simplify tax returns, and protect residents against identity theft. However, the government may struggle to balance this budget in the long run due to these ongoing cuts.

How Big is the IRS?

As of the end of 2024, the IRS had more than 100,000 full-time positions, roughly 10,000 more employees than in 2023. As one of the largest government agencies in the United States, it consists of hundreds of departments across tax enforcement, auditing, and similar roles, with hundreds of millions of tax returns and refunds processed annually.

Its headquarters is in Washington, DC, with smaller offices scattered throughout the country.

Despite its massive size, the IRS has had difficulty keeping up with the millions upon millions of work volume, with complex tax filings and ever-changing compliance laws adding confusion to the mix. Along with budget cuts to keep personnel, many Americans have complained of backlog returns and waiting upwards of an hour to get an IRS agent on the line.

If all of the latest Trump administration policies take effect, staffing levels could return to record lows over the past 40 years, raising concerns among Americans about the quality of service over time.

Can Small Businesses and Identity Theft Protection Be Affected?

One of the biggest losers from IRS layoffs is small businesses, which rely on IRS guidance and tax credits to run their businesses effectively. Now, business tax audits and compliance checks could be affected, which could result in additional penalties, especially for single entrepreneurs and self-employed individuals who do not have in-house resources to file taxes.

Apart from small businesses, identity theft protection can be reduced. With investments made in AI-driven detection and security upgrades, there may be a higher likelihood of cybercriminals filing fake returns using stolen Social Security numbers. Even more, criminals may feel compelled to exploit vulnerabilities within the system now that tech resources may be severely diminished.

How to Protect Your Tax Return from IRS Budget Cuts

To hedge IRS staffing reductions and potential lapse enforcement, we recommend that you take a few proactive steps to ensure accuracy on all of your tax returns.

Here are two helpful tips to abide by:

File Early

To ensure your tax return is error-free, file early. The earlier you file, the less likely you’ll be a victim of backlogs as millions of taxpayers file closer to the tax deadline. With severe staffing services and looming funding cuts, expect increased wait times for processing returns and refund checks.

As a best practice, we recommend gathering your tax documents in January, including all W2s, 1099s, and related paperwork. If you haven’t filed your tax return yet, start today or tomorrow (this writing is as of March 20th).

Double Check Deductions and Credits

We recommend that you research the deductions thoroughly, especially those related to home office expenses and medical expenses. Additionally, you want to keep the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) in mind, which can give you the greatest return on your tax bill. Do not hesitate to use tax software like TurboTax and H&R Block, which offer helpful step-by-step guidance on maximizing your refund.

With the IRS’s projected diminished capacity, we rely on tech more than ever to avoid manual errors and under-claiming the credits and deductions they deserve.

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