IRS Workforce Cuts And New Tax Law Reshape 2026 Filing

The 2026 tax season is shaping up to be one of the most complicated and consequential in recent memory, as millions of Americans navigate a maze of new rules, digital reforms, and shifting IRS procedures. With the Internal Revenue Service expecting to receive a staggering 164 million individual tax returns this year—most submitted electronically—taxpayers are being urged to prepare for both opportunities and potential pitfalls in the months ahead.

According to The Economic Times, the vast majority of returns are now filed online, a trend that typically leads to faster refunds. Historically, more than 90% of refunds are issued within three weeks for e-filed, error-free returns with direct deposit. Yet this year, the IRS is grappling with a 25–27% reduction in its workforce, a late executive shakeup, and the daunting task of implementing sweeping changes from the recently enacted 'One Big Beautiful Bill.' All these factors combine to create a season marked by both optimism and uncertainty.

National Taxpayer Advocate Erin M. Collins, in her 2025 Annual Report to Congress released on January 28, 2026, warned that while many taxpayers will see their returns processed quickly, "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." She noted challenges including workforce reductions, leadership turnover, and the complexity of new tax laws. The 'One Big Beautiful Bill,' signed into law on July 4, 2025, expands eligibility for key deductions and benefits. Collins described the act as "generally taxpayer-favorable," but added, "the deductions and benefits are subject to complex eligibility rules, income thresholds, and phaseouts that will be difficult for many taxpayers to understand and for the IRS to administer accurately during the filing season."

One of the most significant changes this year is the IRS's move to phase out paper refund checks. During the 2025 filing season, 94% of taxpayers provided direct deposit information, but millions still received paper checks—a system plagued by loss, theft, and fraud. As Collins pointed out, "paper refunds are more susceptible to loss, theft and fraud, and once compromised, they can trigger a long and stressful resolution process for the affected taxpayer." The IRS will now require those who do not provide direct deposit information to respond to a CP53E notice within 30 days, or risk having their refund frozen. If no action is taken, a paper check may be issued only as a last resort after a six-week delay.

This transition is expected to hit certain groups especially hard. Collins wrote, "this transition is expected to disproportionately affect unbanked, underbanked, disabled, elderly and other vulnerable taxpayers for whom paper checks have often been the only practical means of receiving refunds needed to cover basic living expenses." To help smooth the process, the IRS will be sending letters to taxpayers lacking bank information and urging them to consider alternatives like reloadable debit cards and digital wallets. Still, for many, the loss of paper checks could mean significant refund delays.

For those still filing by paper—a group that numbered around 11 million in 2025—additional headaches may await. The IRS has launched a "zero paper initiative" to digitize operations, outsourcing the processing of paper returns to private companies using optical character recognition technology. While this could speed up processing, it introduces new operational and confidentiality risks. Collins cautioned, "the IRS should not put all its eggs in one basket by eliminating or severely reducing the submission processing employees needed to process paper returns before validating technology performance." She also referenced a recent case in which an IRS contractor employee, Charles Littlejohn, stole and leaked thousands of taxpayer records, underlining the need for stronger penalties and oversight.

Refund tracking remains a bright spot, with the IRS encouraging taxpayers to use its "Where’s My Refund?" tool, which updates every 24 hours and provides real-time processing information. However, delays are still possible for those with identity verification issues, paper filings, or who claim certain credits like the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC). In fact, refunds for these credits are required by law to be held until mid-February, with payments expected to reach bank accounts by March 2, 2026.

Customer service, another perennial sore spot, is likely to be stretched thin. The IRS receives over 100 million phone calls and several million pieces of correspondence annually, but Collins’ report criticized the agency’s reliance on "voicebots" and its lack of comprehensive measures to assess the quality of telephone service. "Taxpayers generally were not satisfied with the voicebots," the report stated, with only about half finding the "Where’s My Refund?" bot helpful. The number of customer service representatives was reduced by 22% in 2025, and while some positions were filled late in the year, the new hires have less experience than those who departed.

For those facing more complex issues, such as identity theft or amended returns, patience will be required. The advocate’s report found that hundreds of thousands of taxpayers wait an average of over 21 months for resolution of identity theft victim assistance cases. Processing of amended returns is also slow, with business returns taking over 13 months on average, and individual returns taking more than five months.

Some relief has come for student loan borrowers. The U.S. Department of Education announced on January 16, 2026, that it will delay implementing involuntary collections on federal student loans, including the offset of federal income tax refunds. This means millions who are in default will not see their refunds seized—at least for now. However, uncertainty remains about how long this reprieve will last.

There are also new benefits to be claimed this year under the 'One Big Beautiful Bill.' Taxpayers can use the new Schedule 1-A to claim deductions such as no federal tax on tips and overtime pay, car loan interest deductions, and enhanced deductions for senior citizens. While these changes are designed to be taxpayer-friendly, their complexity could trip up many filers and require significant IRS programming, guidance, and education efforts.

Automation and AI-assisted review tools are helping the IRS offset workforce losses, but manual reviews are still needed for returns flagged for discrepancies, fraud prevention, or eligibility checks for refundable credits. The agency encourages everyone to file electronically and use direct deposit to avoid unnecessary delays.

For those who miss the April 15, 2026 deadline, an extension can be requested until October 15, 2026 by submitting Form 4868. But, as always, the sooner returns are filed—and the more accurate and complete they are—the better the chances of avoiding the season’s many new snags.

With historic changes, digital modernization, and a shrinking workforce, the 2026 tax season will test both the resilience of the IRS and the resourcefulness of American taxpayers. For many, it’s a year to pay extra attention to the fine print—and to double-check those bank details before hitting "submit."