Latest IRS budget cuts may be lower than expected, but still could impact taxpayers, experts say

People exit the the U.S. Internal Revenue Service (IRS) building in Washington, D.C., on Feb. 20, 2025.

Kent Nishimura | Reuters

House lawmakers this week could vote to approve a smaller IRS budget for the current fiscal year as Congress races to avoid another government shutdown. While the funding is higher than earlier proposals, the cuts may still create challenges for the agency, experts say.

The appropriations agreement would allocate $11.2 billion for the IRS for the remainder of the 2026 fiscal year, which is about 9% lower than the agency’s 2025 budget of $12.3 billion. The bill “restrains the IRS, while investing in taxpayer services,” Republican lawmakers said in a summary.

The House could vote on the bill Wednesday. If approved, the measure would provide $3 billion for taxpayer service, an increase of about $256 million from fiscal year 2025, and roughly $5 billion for enforcement, a reduction of $439 million, according to a joint statement from both chambers of Congress.

Smaller IRS workforce for 2026 season

The proposed budget comes as the IRS prepares for the opening of tax season on Jan. 26. The agency expects about 164 million individual returns in 2026, and many will be impacted by tax changes enacted via President Donald Trump‘s “big beautiful bill.”

A group of senators led by Elizabeth Warren, D-Mass., and Angus King, I-Maine, in December expressed “serious concerns” about the agency’s readiness for the upcoming filing season after staffing cuts from Elon Musk‘s so-called Department of Government Efficiency, or DOGE, and other reductions in 2025.

The workforce cuts — which included 17% to 19% of “key IRS functions” for the filing season — could impact processing and customer service in 2026, according to a September report from the Treasury Inspector General for Tax Administration, an independent federal agency.

During an American Institute of Certified Public Accountants town hall on Jan. 8, former Deputy Secretary of Treasury Michael Faulkender said, “the DOGE team did good work despite their inability to really explain it to the American people or Congress.”

Faulkender, who served as Acting IRS Commissioner from April 19 to June 16, 2025, said the team’s updates will provide an “enormous change” for how quickly customer service agents can access information and the self-service platforms available via IRS.gov.

The impact of IRS budget cuts

While the proposed IRS budget includes more modest cuts than expected, the shortfall could still harm the agency, according to some experts.

“The agreement’s record cuts to the IRS’s inadequate base budget are yet another blow to a tax system that has already been deeply wounded over the last year,” Chye-Ching Huang, executive director of the Tax Law Center at New York University School of Law, said in a statement this week.

IRS CEO Frank Bisignano said in a news release on Jan. 8 that “the Internal Revenue Service is ready to help taxpayers meet their tax filing and payment obligations during the 2026 filing season.”

“IRS information systems have been updated to incorporate the new tax laws and are ready to efficiently and effectively process taxpayer returns during the filing season,” he said.