IRS budget cuts, the elimination of the free Direct File program, and new tax provisions in the One Big Beautiful Bill (OBBB) have created a challenging tax season for filers and may threaten the long-term integrity of the tax system, according to new analysis from the Center on Budget and Policy Priorities (CBPP).
Funding, Staffing Gaps Weaken Agency
A decade of budget cuts has left the IRS struggling to perform its basic functions, a problem exacerbated by recent congressional action. Congress recently passed a fiscal year 2026 appropriations package that cut $1.1 billion from the agency’s annual budget and rescinded most of the remaining multiyear funding provided in the 2022 Inflation Reduction Act (IRA) to rebuild the agency, according to the CBPP’s April 9 report “Three Strikes Against Filers This Tax Season.” The base IRS budget is now 40% below its 2010 level when adjusted for inflation, the report states.
CBPP Deputy Director of Federal Tax Policy Samantha Jacoby, who authored the report, described the trend to Checkpoint as part of a long-term effort of “effectively hollowing out the agency by reducing funding.” She noted that the IRA funding was meant to give the agency “long term certainty so that it could make investments that needed to be made over multiple years,” but rescissions have since undermined that goal.
The cuts have also driven drastic staff reductions, with the number of IRS employees falling 27% in the past year, according to the report. To compensate, the agency took the unusual step of reassigning employees from human resources and IT departments to answer phones, a move Jacoby said was “costly” and likely ineffective.
Those workers must complete a 12-week training program that will not wrap up until after April 15, too late to help with the main filing season rush. “Many of those employees are not trained in customer service roles,” she said.
Impact on Taxpayers
The consequences for taxpayers are direct. The IRS lowered its phone service goal for this filing season to just 70% of incoming calls, down from 85% in 2025, meaning more taxpayers will go without answers and errors will likely increase, the report states.
Jacoby noted that the complexity of the new deductions, combined with reduced access to IRS assistance, has increased the likelihood that many filers “are either taking deductions that they don’t qualify for, or they aren’t taking deductions that they do qualify for because they don’t understand them.”
Compounding those service issues is the Trump administration’s decision to end Direct File, the free electronic filing tool the IRS piloted in 2024 and expanded in 2025. Customer satisfaction was high, with 94% of users describing their experience as “excellent” or “above average,” according to the report.
Its elimination will make tax filing “harder and more costly for many households with low or moderate incomes,” Jacoby wrote.
OBBB Tax Cuts Favor Higher-Income Households, CBPP Finds
While services for average filers have declined, the OBBB delivered tax cuts that CBPP says are heavily concentrated at the top of the income distribution. The organization has described the law as “the greatest legislative transfer of resources from lower- to higher-income families in modern times.” Under the law, the average household with $1 million or more in income will receive over $100,000 in tax breaks in 2027, while the average household earning less than $50,000 will get about $250, according to the report.
The legislation delivered $4.5 trillion in tax cuts, partially financed by $1.3 trillion in cuts to programs including Medicaid and the Supplemental Nutrition Assistance Program (SNAP), according to a separate CBPP report by Senior Director for Federal Budget Policy Brendan Duke. Jacoby framed the OBBB as a transfer from low-income households to “very high income households who received large tax cuts on top of the large tax cut they received from the first Trump tax cut law in 2017.”
The OBBB also left 19 million children out of the full $2,200 Child Tax Credit (CTC) because their families’ incomes were too low, Jacoby’s report states. Child Tax Credit refundability improvements proposed in the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) would have increased income by $360 for a North Carolina server earning $30,000 annually who receives no benefit from the tip deduction, at a cost roughly similar to the tipped income deduction, according to the Duke report.
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