As the midnight deadline for the government approaches, there’s increasing concern about a potential shutdown in Washington. Typically, this means that many non-essential services will halt. However, a recent budget plan from the IRS indicates that operations will continue for the first five days of a shutdown, largely due to funds reallocated from the Inflation Reduction Act (IRA).
What remains uncertain is what will happen afterward.
Funding Sources During Shutdown
In a typical shutdown scenario, federal agencies cease operations due to funding issues. Despite this, the IRS has secured funds allocated through the IRA to keep running.
President Biden signed the Inflation Reduction Act into law back in August 2022, which included an additional $80 billion for the IRS over ten years. This funding is primarily earmarked for enforcement and improving technology.
However, Congress recently cut the tax enforcement budget by $20 billion. Although the reductions were meant to unfold over two years, they resulted in $2 billion cut in the first year of 2024. Overall, Congress anticipates having over half of the allocated funds available until September 30, 2031.
IRS Contingency Plans
Are government workers allowed to show up if they are not being paid? No, that’s against the law.
The Antideficiency Act dating back over a century prohibits federal agencies from spending money that hasn’t been authorized. It also doesn’t allow voluntary services from federal workers. Any violations carry stiff penalties, leading agencies to prepare detailed but often vague contingency plans.
The latest from the IRS is quite brief—just five pages. It outlines the actions for the first five business days if the shutdown happens. According to the plan, while they don’t expect to utilize it, preparation is key.
Tax Submission Deadlines
Historically, tax submission deadlines remain unchanged during shutdowns. This means that anyone who filed for an extension for the 2024 tax year still has the October 15, 2025 deadline looming.
Moreover, payment schedules also stay in place. Taxpayers must continue to make their payments, and employers need to keep up with federal tax withholdings as usual.
Impact on IRS Employees
The IRS anticipates about 74,299 employees will be operational at the start of a shutdown, down from the 90,516 full-time equivalent positions planned for 2024. These employees will continue their work as normal at least for the first five days. Beyond that, some staff may be furloughed.
Myth of Savings During a Shutdown
There’s a common misconception that shutdowns save taxpayer money. However, while federal employees don’t get paid during a shutdown, they will receive backpay once it ends, meaning taxpayers still cover these costs.
For context, during the historically long 35-day shutdown in December 2018, the IRS faced significant backlogs, having over five million pieces of unanswered mail. Taxpayer services were severely hampered, and it took considerable time for the agency to resume normal operations afterward.
Shutdowns tend not to save money but generally incur higher costs. Reports show that recent closures have resulted in substantial taxpayer losses, amounting to nearly $4 billion due to unpaid work days and additional expenses linked to government operations.
Employee Sentiment and Union Response
The union representing around 150,000 federal employees, including those at the IRS, is urging for a compromise. They emphasize the anxiety and uncertainty caused by looming deadlines and funding debates.
Employees are feeling tense as they await decisions on who continues working without pay versus who will stay home. The routine disruptions brought on by shutdowns have made it harder for employees to focus on their responsibilities.
What Might a Shutdown Look Like?
If a shutdown occurs without additional cuts, we can expect a situation similar to past closures. Historically, about two-thirds of IRS staff remained operational, while some were needed for duties deemed essential.
Future Outlook
This month, the House passed a Republican-led bill to fund the government for an additional seven weeks. The Senate requires a supermajority to advance this, meaning that at least seven Democrats must join all 53 Republicans in support. Democrats are advocating for expanded healthcare subsidies as a condition for their votes.
Recent votes show a close split, and further attempts to push the bill will resume soon.
As the situation unfolds, agencies are advised to prepare for possible shutdown procedures.
