Massive cuts to the IRS have been cited as a factor behind a predicted $500 billion drop in tax revenue in 2025.
Fewer Americans are expected to file their returns before the deadline on April 15, according to a report from The Washington Post.
The cause has been attributed to a combination of budget cuts, workforce reductions, and a shift in public behavior—some of which is driven by online calls to opt out of paying taxes entirely.
According to the report, the Internal Revenue Service is dealing with serious fallout from staffing cuts tied to the Department of Government Efficiency (DOGE), a program implemented under the Trump administration and linked to broader federal downsizing initiatives.
Why Are Tax Filings Down?
Multiple sources cited by the Post say the IRS has noticed increased online chatter from taxpayers announcing their plans to skip filing this year.
This is because many people now believe reduced staffing will drastically lower the risk of audits or enforcement action.
This belief isn’t entirely unfounded.
DOGE has reportedly slashed IRS staffing by nearly 20%, with a deadline of May 15.
That includes:
- Cuts to enforcement and customer service teams
- Canceled investigations into large corporations and high-income earners
- A halt in hiring plans for modernization projects
$500 Billion Missing: The Economic Impact
IRS and Treasury officials, speaking under condition of anonymity, project more than a 10% drop in tax receipts year-on-year.
In 2024, the IRS collected approximately $4.9 trillion in total revenue.
A 10% drop equates to over $500 billion in lost income, a number comparable to 60% of the US military’s annual budget.
For job seekers and employers, this isn’t just a government problem—it could reshape federal funding for key programs, including:
- Public sector hiring: Fewer tax dollars could freeze or reduce hiring across federal departments.
- Government contracts: Companies relying on federal contracts may see reduced budgets or slower payment cycles.
- Infrastructure and development: Long-term projects may face delays or cancellations.
IRS Staffing Crisis: Warnings Ignored?
The IRS employs about 90,000 workers nationwide, but the rapid reduction in personnel is straining core services.
An internal January presentation, seen by the Post, warned the incoming administration that aggressive staffing cuts could result in:
- Major delays in processing returns
- Reduced customer support availability
- Lower tax compliance across the board
- A failure to modernize outdated systems
Former IRS commissioners echoed this in a New York Times op-ed, calling the cuts “destructive” and warning they would “render the IRS dysfunctional.”
Delays, Extensions, and Wildfire Disruptions
Not all of the drop in filings is deliberate.
Wildfires in California have disrupted tax preparation in wealthy neighborhoods of Los Angeles.
Under IRS disaster relief guidelines, affected taxpayers may delay filing until October.
Meanwhile, many Americans are opting for the standard six-month filing extension, which allows them to avoid penalties while buying time during economic uncertainty.
Still, experts say these issues don’t explain the scale of the projected $500 billion revenue shortfall.
So What Does This Mean for the Job Market?
For job seekers, especially in taxation, auditing, or public administration, the impact is immediate and potentially long-lasting. Here’s how:
- Government Job Cuts Could Continue. If DOGE’s reductions stay on track, more job losses in the federal sector are likely—especially at the IRS and related departments.
- Demand May Shift to the Private Sector. Private tax-preparation firms, fintech startups, and compliance software providers could see a surge in demand as the IRS pulls back on enforcement and support.
- Hiring Slowdown in Regulated Industries. Industries that rely on tight government oversight—like banking, energy, and healthcare—may face delays or uncertainty, potentially slowing hiring.
- Lower Confidence in Public Institutions. Tax compliance depends on public trust.
If faith in the IRS continues to fall, broader instability could hit jobs tied to government-backed programs.
Looking Ahead: Will DOGE Deliver Efficiency or Chaos?
What happens next depends on how the government responds. If the predicted $500 billion gap materializes, policymakers may be forced to:
- Reevaluate staffing cuts at the IRS
- Introduce new compliance tools, possibly driven by AI and automation
- Increase reliance on third-party contractors to fill the skills gap
For now, employers should brace for uncertainty in areas related to tax regulation, compliance, and federal contracts. Job seekers, especially those with backgrounds in auditing, finance, or public service, may want to look to the private sector for more stable opportunities in the short term.
