March 23, 2025
The Trump administration is reported to have plans to eliminate up to 50% of the Internal Revenue Service (IRS) workforce. The IRS had about 100,000 workers when Donald Trump became president, meaning up to 50,000 employees are set to lose their jobs. The first round of layoffs of 7000 employees has been reversed by the courts, but a permanent reduction in the workforce is a real possibility.
The predicted consequences of these IRS layoffs include:
1. Delayed Tax Processing and Refunds
With a reduced workforce, the IRS may experience longer processing times for tax returns and issuing refunds, especially during peak tax seasons. This could lead to taxpayer dissatisfaction and financial inconveniences.
2. Reduced Enforcement and Increased Tax Evasion
The layoffs are expected to affect the IRS's enforcement capabilities, particularly in auditing corporate and high-net-worth individuals. This reduction in oversight could result in increased tax evasion and a widening tax gap, the difference between taxes owed and taxes collected.
3. Diminished Customer Service
Fewer IRS employees could lead to longer waiting times for taxpayer help via phone or in-person consultations, making it more challenging for individuals and businesses to resolve tax-related issues promptly.
4. Challenges in Implementing New Technologies
The IRS is re-evaluating its modernization efforts, including integrating artificial intelligence technologies. A reduced workforce will hinder the agency's ability to effectively implement and manage these technological advancements, potentially affecting future efficiency gains.
Recommendations for taxpayers in response to the IRS layoffs
Individual taxpayers should not use these layoffs as an opportunity to avoid reporting income on tax returns filed with the IRS. Tax evasion is still illegal. In addition, although the risk of being audited may be reduced, the penalties for not filing a correct tax return and paying the IRS on time can still prove large.
Although many taxpayers look forward to getting refunds when they file their tax returns, the prospect of delayed tax processing might require a new filing strategy. Taxpayers should consider checking their income and tax withholding throughout the year and plan to have a small balance due reported on their April 15 tax returns. The IRS has published guidelines for avoiding penalties on balance-due payments listed below.
For further reading, see:
https://budgetlab.yale.edu/research/revenue-and-distributional-effects-irs-funding
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