The Internal Revenue Service is grappling with significant operational challenges following substantial workforce reductions, which are now directly impacting American taxpayers expecting refunds. According to a recent Treasury Department watchdog report, the IRS has lost approximately 27 percent of its staff since January 2025, leading to a severe backlog and potential delays in refund processing.
Staffing Shortages Create Massive Backlog
The staffing crisis at the IRS has resulted in a backlog of nearly 590,000 amended tax returns, with the agency struggling to maintain its usual processing timelines. This backlog represents an increase of about 20,000 cases compared to just over a year ago and is roughly four times larger than the pre-pandemic backlog recorded in 2019.
Impact on Taxpayer Refunds
Taxpayers who file amended returns are particularly vulnerable to delayed refund payments. Amended returns are typically submitted by individuals who need to correct errors in their original filings, including mistakes related to income reporting, deductions, dependents, tax credits, liability calculations, or refund amounts. With average refunds totaling $3,167 last year, these delays represent significant financial setbacks for many households.
The Treasury report indicates that the IRS has been forced to reduce its telephone customer service goals from 85 percent to just 70 percent, meaning the agency now handles only seven out of every ten calls it receives. This reduction in service capacity further compounds the challenges facing taxpayers seeking assistance with their returns.
Financial Consequences for the IRS
The processing delays are creating substantial financial liabilities for the federal government. By law, the IRS must pay interest on refund amounts issued more than 45 days after the filing deadline. In 2025 alone, this requirement cost the agency more than $2.6 billion. For the first quarter of 2026, the interest rate on late refunds stands at 7 percent, according to tax preparation service TurboTax.
Root Causes of Workforce Reduction
The dramatic workforce cuts at the IRS followed layoffs implemented by the Department of Government Efficiency (DOGE), which was overseen by billionaire Elon Musk during the early days of the Trump administration. These reductions have left the agency understaffed and struggling to manage its inventory of filed tax returns and consumer correspondence effectively.
The Treasury Department's watchdog report paints a concerning picture of an agency that cannot keep pace with its responsibilities. As the backlog continues to grow and customer service capacity diminishes, American taxpayers face increasing uncertainty about when they will receive their refunds. The situation highlights the broader implications of government workforce reductions on essential public services and individual financial planning.
