As the United States enters the tenth day of a government shutdown, the Internal Revenue Service (IRS) finds itself at the center of a perfect storm: staff furloughs, new tax law implementation, and sweeping inflation adjustments for 2026. While much of the public’s attention has focused on shuttered national parks and delayed paychecks for federal workers, the IRS’s unique position reveals a cascade of consequences for taxpayers, businesses, and policymakers alike.
According to reporting from Bloomberg and other outlets, just under 40,000 IRS employees remain on the job as of October 10, 2025, with nearly half the agency’s workforce furloughed. This comes after a year marked by an exodus of senior staff and ongoing threats of budget cuts that have shrunk the IRS’s ranks to less than 75,000—down from about 100,000 at the start of the year. The agency’s ability to operate at full speed has been further hampered by a lack of stable leadership: the IRS chief counsel’s office, responsible for drafting crucial guidance on tax law, has been without a permanent head for months. Ken Kies of the Treasury Department’s Office of Tax Policy is serving as acting chief counsel, pending Senate confirmation of Don Korb.
Despite these challenges, the IRS is pressing forward with the rollout of the GOP’s signature tax law, enacted in July 2025. Employees working on implementing the new law are largely exempt from furloughs, reflecting the administration’s determination to prioritize tax policy even in the midst of government gridlock. But experts warn that the shutdown’s ripple effects are unavoidable. "Even with the best efforts and designating people ‘essential,’ there is going to be a natural slowdown on how quickly they can get guidance out," Marc Gerson, tax policy practice lead at Miller and Chevalier, told Bloomberg. "It’s definitely going to have a negative impact on the guidance."
Indeed, the demands for new guidance are immense. The IRS’s chief counsel’s office—hundreds of attorneys strong—has been tasked with translating the July tax law into actionable regulations and guidance for taxpayers. But with half the staff sidelined, progress has inevitably slowed. Taxpayers and their advisors are already feeling the pinch. Gerson noted that clients have reported delays in expected refunds and processing of returns, while others worry about the agency’s responsiveness to questions about the new law.
Some, like Josh Odintz, a partner at Holland & Knight and former Treasury Department lawyer, remain cautiously optimistic. "During a normal shutdown, the Treasury and IRS Chief Counsel maintain a skeletal staff and the regulatory process grinds to a halt," Odintz explained to Bloomberg. "I anticipate Treasury will continue to work on and release guidance listed on the priority guidance plan, such as no tax on overtime, no tax on tips, qualified production property, and other priorities."
On the ground, however, the situation is more complicated. IRS examination activities are effectively on pause, according to Clay Hodges, a director with Baker Tilly National Tax. Agents have contacted taxpayer representatives to say they’re being furloughed and will reach out again once the shutdown ends. "Some customer service representatives remain available and are still answering calls, but they’ve described the situation as ‘day to day’ and are uncertain whether they’ll be working the following day," Hodges wrote in an email to Bloomberg.
For ordinary taxpayers, the uncertainty can be nerve-wracking. Jennifer MacMillan, president of the National Association of Enrolled Agents, highlighted concerns for those who file late or receive IRS notices after submitting returns. "If someone’s bank account is supposed to be levied and we’re supposed to call the IRS by a certain date but the government’s closed—is the computer going to levy their bank account? What’s going to happen? It’s a little unnerving," MacMillan told Bloomberg.
Meanwhile, the IRS announced on October 9 and 10 a series of inflation adjustments for 2026 that will affect millions of families and individuals. As reported by CNBC and other outlets, the standard deduction will rise to $32,200 for married couples filing jointly and $16,100 for single filers. Federal income tax brackets, long-term capital gains brackets, estate tax exemptions, and the child tax credit are all being updated to reflect higher costs of living.
The maximum child tax credit, which was bumped to $2,200 per child by the July 2025 tax law, will remain at that level for tax years 2025 and 2026. The refundable portion of the credit—what families might get back if their tax liability is less than the credit—will stay at $1,700 for 2026. The earned income tax credit (EITC), a lifeline for low- and middle-income families, will also see increases: up to $8,231 for families with three or more children, $7,316 for two children, $4,427 for one child, and $664 for those with no children. These changes, along with adjustments to the adoption credit (rising to $17,670 for 2026) and gift tax exclusions, are designed to help families keep pace with inflation—but only if they can navigate the evolving rules and access timely IRS support.
Yet, as the shutdown drags on, the rollout of these adjustments is anything but smooth. The IRS initially assured furloughed employees they would receive back pay, only to walk back those assurances on October 9 and 10, further fueling anxiety within the agency’s ranks. The delays also have a broader economic impact: key reports, such as jobless claims data, have been postponed, contributing to a cooling of the stock market on October 9, as reported by local business news outlets.
Political leaders are divided over the root causes and potential fallout. Senator James Lankford (R-Okla.) voiced concern about a "dramatic slowdown" in the IRS’s responsiveness, warning that a shutdown lasting more than a few days could set back the rollout of new guidance by a month. "It matters how long this lasts," Lankford said. "If it’s a couple of days, it won’t set us back. If it’s a couple of weeks, that could set us back a month." On the other side of the aisle, Senator Elizabeth Warren (D-Mass.) argued that the shutdown is just the latest blow to an agency already weakened by budget cuts under the Trump administration. "Collecting taxes is clearly not at the top of the Trump agenda," Warren said. "They’ve already passed huge budget cuts for the IRS, because they don’t want effective tax collectors going after billionaire tax cheats."
As the IRS juggles furloughs, new laws, and inflation adjustments, the stakes for taxpayers and the broader economy remain high. The agency’s ability to deliver clear, timely guidance and process returns efficiently will be tested in the weeks ahead. For now, both taxpayers and tax professionals are bracing for more uncertainty as the shutdown continues to cast a long shadow over America’s tax system.
