Why It Matters

The IRS processed nearly all tax returns during the latest filing season, but staffing losses, technology problems and new tax provisions forced the agency to rely more heavily on outside vendors and automation while taxpayers faced longer waits for paper returns, refunds and customer service.

A recent GAO report released in August found that the IRS, operating with fewer staff than the prior year, struggled to keep pace with a surge in new tax deductions and shifting taxpayer behavior, forcing the agency to outsource critical work and leave many filers waiting far longer for refunds. Taxpayers who filed on paper waited nearly three times longer for refunds in 2026 than in 2025, and average call wait time increased to 8 minutes compared to 3 minutes. The question now is whether Congress will act to restore capacity or continue the trajectory of decline.

The Broader Context

The filing season, which ran from Jan. 26 through April 15, tested an agency that had lost thousands of filing-season employees during fiscal 2025 while implementing new tax provisions. The IRS received about 177 million individual and business tax returns and processed approximately 98% of them, matching the prior year’s rate. About 95% of returns were electronically filed.

Staffing and technology problems had greater consequences for paper returns. IRS officials told GAO that systems used to process paper filings were not ready because the loss of experienced IT acquisition staff delayed procurement requirements needed for programming updates. The individual paper-processing system could not process tax year 2025 returns during the first six weeks of the filing season, while the scanning system for business paper returns was unavailable for the entire filing season.

The IRS responded by sending about half of its paper returns to outside vendors for scanning and electronic submission. The agency sent about 3.7 million business paper returns to vendors, up from 443,000 the previous year. By the end of the filing season, vendors had scanned nearly all of those returns, compared with about 860,000 business paper returns processed by IRS staff.

Staffing also declined sharply. The IRS unit responsible for processing returns ended the filing season with 8,111 employees, 18% fewer than the 9,850 it had at the same point the previous year. IRS staff processed 46% fewer individual paper returns and 80% fewer business paper returns than the year before.

On average, individual paper returns took 30 days to process, up from 16 days the previous year and more than twice the IRS policy target of 13 working days. Business paper Form 941 returns took an average of 72 days, up from 45 days the previous year.

The staffing squeeze coincided with a major change in how the government issues payments. In response to a March 2025 executive order, the IRS began phasing out paper check refunds and shifting taxpayers toward electronic payments.

As of early May, the IRS had sent about 4.2 million notices asking taxpayers who had not provided banking information to submit it so their refunds could be issued by direct deposit. Taxpayers who did not respond within 30 days would receive a paper check after six weeks.

The shift significantly slowed paper refunds. By early April, the number of paper check refunds issued had fallen by more than 80%, from about 2.8 million the previous year to 493,000. The average paper refund took 36 days to issue, compared with 13 days the year before. Nine out of 10 paper check refunds were issued within 57 days, compared with 20 days the previous year.

Overall refunds increased substantially. The IRS issued $296 billion in individual taxpayer refunds by the end of the filing season, 17% more than the $253 billion issued during the comparable period the year before. The average refund increased 11% to $3,275. IRS attributed the increases in part to millions of taxpayers claiming new deductions, including the provisions for qualified tips and overtime.

Reduced staffing also affected customer service. The IRS received about 24.7 million telephone calls during the filing season, 3.1 million fewer than the previous year. Customer service representatives answered 5.7 million calls, down from 8.9 million.

Automation handled a larger share of calls. Of the 11.7 million calls the IRS answered, 41% were handled by automated systems, compared with 34% the previous year. Average wait times for taxpayers seeking telephone assistance increased from three minutes to eight minutes.

In-person service also contracted. The IRS served approximately 626,000 taxpayers in person during the filing season, about 15% fewer than the 740,000 served the previous year. IRS officials attributed the decline to fewer open locations and lower demand for in-person assistance.

Taxpayers increasingly turned to online services. IRS individual online accounts recorded nearly 155 million successful logins through April, the most in the previous six years. The agency’s “Where’s My Refund?” tool received 346 million visits, up 9% from the previous year.

The agency also entered the filing season responsible for implementing major tax changes enacted the previous year. Approximately 45% of individual returns claimed at least one new tax benefit under what the IRS calls the Working Families Tax Cuts, including deductions for qualified tips, overtime, car loan interest and an enhanced deduction for seniors. IRS data independently confirm the 45% figure.

The new provisions contributed to the technology workload facing an agency already experiencing staffing losses. GAO found that programming updates necessary to implement the new tax provisions and transition away from paper refunds were delayed in part because experienced IT acquisition staff had left the agency.

GAO had previously reported that critical systems used to process and scan paper returns would not be available at the start of the filing season and that the IRS expected to rely on outside vendors to mitigate the disruption.

The Bottom Line

The Government Accountability Office examined IRS performance on return processing, refunds and customer service. The report, titled 2026 Filing Season: Preliminary Observations on IRS Performance, was published July 23 and publicly released Aug. 10. GAO compared IRS data with performance during the 2021 through 2025 filing seasons and interviewed agency officials about the causes of the changes.

Overall processing performance remained similar to the previous year, with the IRS processing about 98% of the 177 million returns it received. But the aggregate figure obscured significant operational changes. Paper returns took longer to process, millions of refunds were delayed during the transition away from paper checks, fewer taxpayers received live telephone or in-person assistance, and the agency relied more heavily on outside vendors and automated services.

GAO described the findings as preliminary and said its review of the filing season remains ongoing. The agency plans additional reporting on the IRS’s efforts to notify taxpayers, issue paper refund checks and address other operational challenges.

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