Kansas City IRS layoffs begin with ‘about 1,000’ job cuts — and thousands more are expected America-wide. Will your 2025 returns be affected?

A funding seesaw

Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, told NPR that leading up to the Inflation Reduction Act, the IRS's budget had been reduced by over 20% after accounting for inflation.

That, combined with many IRS employees reaching retirement age, had resulted in a 20% reduction in overall staffing.

One area where staffing shortages hit hard was enforcement. The IRS lost key employees who were trained to examine complex tax returns. As a result, audit rates among the very wealthy declined, which likely deprived the government of tax revenue it otherwise would have been entitled to.

Compounding the problem is that the IRS's computer systems are sorely outdated, with some using programming language from the 1970s. This is a twofold issue. Not only is that technology itself subject to bugs due to its age, but there's the problem of younger members of the workforce not being familiar with it.

After the funding influx in 2022, the agency immediately increased its staff of service representatives.

But while the IRS was supposed to get $80 billion over a 10-year period, $20 billion of those funds have already been clawed back. And now, with DOGE targeting the agency for additional cuts, taxpayers may suffer.

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How IRS cuts could impact Americans

Fewer hands on deck at the IRS could lead to longer wait times for people calling into the agency. That, in turn, could not only cause taxpayers a world of frustration, but in some cases, financial losses.

Reduced IRS funding could also affect turnaround times for tax refunds. Tax returns that are filed electronically typically have refunds issued in less than three weeks. But the turnaround time for paper returns is much longer at six to eight weeks. And the reason is that paper returns have to be processed manually. If the IRS continues to cut staff, it could result in some taxpayers having to wait even longer to get their money.

In 2024, the average tax refund issued came to $3,004. Meanwhile, in 2024, roughly 25% of U.S. households lived paycheck to paycheck, according to Bank of America. For some people, having to wait longer for a tax refund could mean getting deeper into debt, or facing similarly dangerous financial consequences.

Reduced IRS funding is also a problem if it leads to less enforcement. Taxpayer dollars pay for everything from education to defense to social programs like food benefits and Social Security. Tax dollars also help fund key healthcare programs like Medicare and Medicaid.

If the IRS doesn't have enough manpower to collect the revenue it's owed, these and other key services could be at some risk.

So while having fewer employees on hand to conduct audits might seem like a good thing in theory, it could actually have catastrophic results.