Potential Impact of IRS Layoffs on Taxpayers

ARTICLE | March 13, 2025

Authored by Schlenner Wenner & Co

The 2025 tax season is underway in the midst of significant upheaval. The Internal Revenue Service (IRS) has recently let go of a staggering 7,000 workers nationwide, and this number is expected to grow. This mass layoff is part of the Trump administration’s larger plan to reduce the federal workforce and is already raising concerns about its potential impact on this year's tax refunds.

The IRS has seen a decrease of 4.2% in the number of returns filed compared to this time last year, but expects this to level out closer to Tax Day. However, with the significant reduction in staff, questions have arisen about potential delays in the processing of refunds.

Data from the agency shows that thus far, 29,615,000 refunds have been issued in 2025, with more than $102.253 billion in refunds given out, a 10% increase compared to 2024. However, experts are warning taxpayers to brace for longer wait times, particularly if they expect to receive a paper check rather than direct deposit.

The IRS has stated that people who claim the earned income tax credit or the additional child tax credit should anticipate delays. Updates have begun to appear on the IRS's "Where's my refund" tool, but refunds for these credits were only expected to start going out from March 3, assuming no issues with the tax return.

Former IRS commissioner, John Koskinen, has expressed concerns that the reduction in force could render the IRS dysfunctional. The IRS workforce is integral to tax compliance and by preventing tax fraud, they play a significant role in revenue collection. The layoffs could potentially increase the budget deficit and encourage wealthy individuals and large corporations to cheat on their taxes.

Experts are also concerned about the long-term effects of these layoffs on the work of the tax agency. Michael Kaercher, Deputy Director of the Tax Law Center at NYU Law, believes that tax season risks could include delayed tax refunds, inability to answer as many phone calls or help lines, and potential technical issues if the right people are not retained in house.

Taxpayers are advised to stay in close contact with their CPAs or accountants and document matters as best as they can. Despite the turmoil at the IRS, it's important for taxpayers to remain as responsive as possible and aim to close matters efficiently.

As the tax season continues, the full impact of these layoffs on the IRS's capacity to process tax returns and issue refunds in a timely manner remains to be seen. Taxpayers across the nation will undoubtedly be watching with bated breath.