IRS budget cuts in 2026 may be smaller than expected

House members could vote this week to approve cuts to the IRS budget for this fiscal year as Congress races to avoid another government shutdown. Although the funding is higher than previous proposals, the budget cuts could still pose challenges for the agency, experts say.

The spending agreement allocates $11.2 billion to the IRS for the remainder of fiscal year 2026, about 9% less than the IRS’s 2025 budget of $12.3 billion. In their brief, Republican lawmakers said the bill would “curb the IRS while investing in taxpayer services.”

The House could vote on the bill on Wednesday. If approved, the measure would provide $3 billion for taxpayer services, an increase of about $256 million over fiscal year 2025, and about $5 billion for enforcement, a reduction of $439 million, according to a joint statement from both chambers.

The bill would mean that funding for the IRS would be flat or reduced for the fourth year in a row, but the spending would be larger than previous proposals.

The Trump administration’s fiscal year 2026 budget request announced in May included a 20% cut in agency funding. Meanwhile, a bill approved by the House Appropriations Committee in September would have cut the agency’s budget by 23% from current spending.

The budget proposal comes as the IRS prepares for the start of tax season on January 26th. The IRS is expected to file approximately 164 million individual tax returns in 2026, many of which will be affected by the tax reforms enacted by President Donald Trump’s “Big and Beautiful Bill.”

In December, a group of senators led by Sens. Elizabeth Warren (D-Mass.) and Angus King (Maine) expressed “serious concerns” about the agency’s preparedness for the upcoming filing season, following layoffs from Elon Musk’s so-called Department of Government Efficiency (DOGE) and other layoffs in 2025.

The cuts, which include 17% to 19% of “core IRS operations” heading into filing season, could impact processing and customer service in 2026, according to a September report from the Treasury Inspector General, an independent federal agency.

At the American Institute of Certified Public Accountants town hall on January 8, former Deputy Treasury Secretary Michael Faulkder said, “The DOGE team did a good job despite not having the ability to really explain it to the American people or Congress.”

Faulkunder, who served as acting IRS commissioner from April 19, 2025 to June 16, 2025, said the team’s updates will bring “significant changes” to how quickly customer service agents can access information and the self-service platform available through IRS.gov.

Some experts say the proposed IRS budget includes cuts that are more modest than expected, but the shortfall could still hurt the agency.

“The deal’s record reductions to the IRS’s inadequate baseline budget are another blow to a tax system that was already deeply damaged last year,” Chae-Ching Huang, executive director of the Tax Law Center at New York University School of Law, said in a statement this week.

“The Internal Revenue Service stands ready to help taxpayers meet their tax obligations during the 2026 filing season,” IRS CEO Frank Bisignano said in a Jan. 8 news release.

He said, “IRS information systems have been updated to incorporate new tax laws and are ready to efficiently and effectively process taxpayer returns during filing season.”