The IRS has outlined its operational plans amidst the ongoing government shutdown, indicating that about half of its workforce will be furloughed. This comes at a critical time as the agency gears up for the upcoming tax season, during which changes like the tip exemption will take effect.
Government Shutdown Commencement
The U.S. government shutdown began shortly after midnight on October 1, 2025, following Congress’s failure to agree on a spending resolution. This date is significant because it marks the end of the fiscal year, leading to an abrupt end of government funding.
Typically, such shutdowns mean that federal agencies have no budget to maintain operations. However, according to the IRS’s initial 2026 Contingency Plan, released on September 29, 2025, the agency aimed to utilize already allocated funds from the Inflation Control Act to manage its operations for the first five days post-shutdown.
Notably, the Inflation Reduction Act, enacted by President Biden in August 2022, initially provided $80 billion to the IRS over a decade. However, funding was subsequently reduced, leaving around $37.6 billion for the agency.
The IRS has since released an updated 2026 Contingency Plan that reflects significant cuts compared to the first iteration. Here’s what’s changing:
Furloughs and Operational Changes
As per the new 162-page plan, most essential tax functions will be suspended. Consequently, around 34,429 of the 74,299 IRS employees will be furloughed. It’s worth noting that the IRS has already seen a decrease in staffing; back in 2024, the agency had 90,516 employees.
This means many taxpayer services will face interruptions, but some essential functions will continue. The 39,870 employees who remain will include those involved in closed operations and essential services that the law mandates for life and property protection. Importantly, the IRS must still process tax returns related to taxpayer payments to safeguard those funds.
Who stays employed? The acting IRS Commissioner, Scott Bessent, along with a select group of deputy chiefs and chiefs of staff will remain on duty. It’s uncertain if the new IRS CEO position is exempt, as it’s not specified in the plan.
The list of “excepted employees” includes appellate staff and attorneys responsible for meeting critical deadlines, which is important as delays affect both the IRS and taxpayers. Communications offices will continue to operate to keep everyone informed regarding furlough status and other essential updates.
The Taxpayer Advocate’s office will maintain operations with key personnel, including national taxpayer advocate Erin Collins and 75 local attorneys. Additionally, over 3,000 Criminal Investigation officers will continue their work since criminal activity doesn’t cease during a shutdown. This means that investigations will carry on more or less as usual.
About 4,500 IT staff will ensure that taxpayer data and systems remain secure. The IRS’s website will continue to function, allowing taxpayers to file returns and make payments online during this period.
Positions related to large corporate and international business will be exempt, as will around 5,000 roles in small business audits and collections, continued through private debt collection and Inflation Control Act funds.
Some customer service representatives will stay in place, including roughly 3,500 new hires slated to join between late September and early November. The IRS emphasizes that ongoing training is vital for the fast-approaching tax season.
This contingency plan will be active throughout the filing season, which spans from October 8, 2025, to April 30, 2026.
Tax Filing and Payment Deadlines
The tax filing deadlines will remain unaffected; taxpayers with valid extensions for the 2024 tax year still need to submit by October 15, 2025. Tax and payment timelines are unchanged too. Payments, including those under installment agreements, must continue as scheduled. Employers are also required to deposit withheld federal income taxes and other taxes on time.
Ongoing IRS Functions
Some activities that will persist during this shutdown include:
- Application Program Completion and Testing
- Processing of payments
- Statutory protection in bankruptcy and related cases
- Form design and printing for the next tax year
- Maintaining law enforcement operations
In cases of emergencies or disasters, the IRS will be ready to adapt its plans for recovery efforts.
Typically, the IRS issues tax adjustments for the following year in October, but it’s unclear if this schedule will hold. There is a forecast available for adjustments in 2026, though.
Disruptions Expected
Here are some expected service disruptions during the government shutdown:
- Tax refunds will not be processed
- Record processing for non-disaster relief will be paused
- Amendment returns (Form 1040X) will not be handled
- No collection activities will take place
- Customer service lines will remain closed
According to the National Treasury Employees Union, taxpayers can expect longer wait times and possible delays in help as they prepare to file extensions due next week.
Compensation for Furloughed Employees
Furloughed IRS workers have been informed they will receive back pay after the shutdown ends. A letter communicated that those not exempt would be placed in unpaid status until further notice, following a memo suggesting uncertainty about the government’s obligation to pay employees retroactively.
Historical Context
The 2018 shutdown was the longest on record, lasting 35 days, and when operations resumed, the IRS faced considerable backlogs. Before reopening, the agency was significantly delayed in hiring and training new employees for the tax season. At the time, millions of mail pieces remained unanswered due to the shutdown.
When operations were restored in January 2019, the IRS was already in a cash-strapped position and lacked sufficient staff to clear backlogs, relying instead on reassigning employees to address existing mail. It was estimated that clearing the backlog could take about a year.
Future Outlook
This situation is still evolving. While there is a plan in place, it is subject to change. For the latest updates, consulting with the appropriate tax teams is advised.
