IRS faces big tax season challenges as paper refunds are phased out

National Taxpayer Advocate Erin M. Collins warned in her 2025 Annual Report to Congress that the IRS will confront staffing cuts, leadership turnover and complex new tax rules for the 2026 filing season, and the agency is phasing out paper refund checks, which could delay refunds for people without direct deposit.

The National Taxpayer Advocate’s 2025 Annual Report to Congress warns that the IRS faces several operational challenges heading into the 2026 filing season. The agency is implementing complex tax law changes enacted retroactively for 2025 while managing reduced staff and leadership turnover. The report also notes a policy shift away from paper refund checks toward electronic payments. These changes are reported as likely to create extra processing and service challenges for some taxpayers. Key points: - The report states the IRS will confront a roughly 27% reduction in workforce, turnover in leadership, and substantial programming and form changes tied to a 2025 tax law. - The IRS is phasing out paper refund checks; it will encourage direct deposit, may hold refunds up to six weeks when banking information is missing, and will send letters requesting updated account details. - The U.S. Department of Education announced a delay on involuntary collections, including offsets of federal tax refunds, but the announcement did not specify how long the delay will last. - Customer service capacity and processing performance have weakened, with a reported 22% decline in staff who handle calls and correspondence, widespread use of automated voice systems, and continued lengthy waits for some identity-theft and amended-return cases. Summary: Most individual returns and refunds are reported as likely to be processed on schedule, but the report highlights groups that could face delays or added difficulty, including those without direct deposit and taxpayers with identity-theft or amended-return issues. The IRS plans further steps such as outreach about direct deposit and continued implementation of digitization initiatives; the Department of Education’s delay on offsets reduces one immediate source of refund seizures, though the duration of that pause is undetermined at this time.