The IRS is trying to make the best of a government shutdown. Here's how to protect your refund.

MW The IRS is trying to make the best of a government shutdown. Here's how to protect your refund.

Andrew Keshner

The IRS is 'already understaffed and overworked' as a partial government shutdown looms

Why getting it right on your income-tax return is extra important this tax season.

The Internal Revenue Service is facing challenges in its ability to smoothly handle the 2026 tax-filing season amid deep staff cuts, missed hiring goals and a tax code stuffed with new rules.

That's according to reports from two different watchdogs this week - the Treasury Inspector General for Tax Administration, and the IRS National Taxpayer Advocate.

Now the kicker: Their warnings didn't even factor in the implications of a another U.S. government shutdown, after a record-breaking one concluded last November.

Another shutdown now seems highly likely but could be very short, according to analysts. It will probably conclude by the middle of next week, said Tobin Marcus, head of policy and politics at Wolfe Research, after a potential breakthrough Thursday on Capitol Hill.

The federal government's tax collector was staring at a funding lapse starting at 12:01 a.m. Eastern time Saturday, just days after it started processing 2025 income-tax returns. That's also just as Americans are counting on much larger refunds starting to hit their bank accounts.

For now, there's a backup plan that averts shutdown impacts at the IRS: The agency is going to use Biden-era funding to pay for all of its staff until Saturday, Feb. 7, according to a lapse plan shared by Melanie Lauridsen, vice president of tax policy and advocacy at the American Institute of CPAs.

The Treasury Department did not immediately respond to a request for comment.

The IRS's backup funding plan underscores a stark fact: Even a brief shutdown is the last thing it needs. If the shutdown drags on longer, it could be another headache for the agency - and, potentially, for taxpayers.

By staying fully staffed, the IRS should be able to continue processing tax returns and issuing refunds during a shutdown. If a tax return is straightforward and error-free, tax filers should still expect a smooth path ahead - and that includes getting any refund on time, according to experts.

But if they have questions for customer service or worry about possible glitches with their return, they should brace themselves for longer hold times and the chance of unanswered questions.

This all means it's extra important to get it right when filing your tax return now, experts say, especially if you want your refund on time.

"If there's anything wrong with your tax return - a missing digit in your Social Security number, or you don't provide enough information about a deduction, or something the IRS has to question - it just means it will slow the processing of that return, for sure," said Matthew Lee, a partner at Fox Rothschild who represents clients with tax-related issues, including audits.

"Even if it's a short shutdown, it couldn't come at a worse time for this agency," Lee added.

Six of 12 federal funding bills still need to be enacted, including the one for the IRS. The potential partial government shutdown is linked to a face-off over funding for the Department of Homeland Security after federal agents shot and killed Minneapolis resident Alex Pretti last week.

President Donald Trump reached a deal with Senate Democrats to keep the government open through September while allocating stopgap funding for the Department of Homeland Security as negotiations continue. The arrangement still has to pass the Senate, while the House of Representatives is scheduled to reconvene Monday.

Lauridsen and her organization, the American Institute of CPAs, was hoping for the IRS to continue working completely.

"We are deeply concerned that taxpayers and practitioners may experience significant harm and overwhelming challenges if the IRS operates during the current filing season with a fraction of its workforce," a Thursday letter from the organization said.

IRS staff fell to approximately 74,500 in December, marking a 27% decline from January 2025, according to the National Taxpayer Advocate's report Wednesday. Many of those exiting employees had years of institutional knowledge that was tough to replace, the report added.

Last fall's shutdown also hobbled the agency's preparation for filing season, according to the reports this week. The IRS wanted to hire around 3,500 customer-service representatives for the filing season "but it fell over 1,000 employees short," the National Taxpayer Advocate report noted.

IRS staff is "already understaffed and overworked," said Thad Inge, vice president of Van Scoyoc Associates, a Washington-based government-affairs firm, where he focuses on tax administration and tax policy.

Further strains resulting from furloughs would compound the issues, he said. "It's up to the administration what kind of a picture they want to paint" in the public view of a shutdown, Inge said, adding that it's hard to see how the Trump administration could benefit in the public eye from tax-filing difficulties.

Tax filing should go smoothly for most people, but frustrations arise when something goes wrong and it's tough to get help at the IRS. "That's the nightmare scenario - that those things just happen more frequently and become more exacerbated when the agency is not firing on all cylinders," Inge said.

To be clear, the shutdown doesn't change any tax-filing deadlines. Americans still have to pay their taxes by April 15, and they still need to file a return or get an extension by that date.

A key question is how long any partial shutdown lasts - and what happens if it stretches past next week.

Generally speaking, all IRS workers with filing-related work will continue working unless exempted, former IRS Commissioner Charles Rettig told MarketWatch on Tuesday. The agency's staff is resilient and understands the importance of having a successful filing season, he said.

Rettig led the agency during the second-longest government shutdown, which concluded days before the 2019 filing season. Then he had to temporarily close IRS operations in the heart of the 2020 filing season as the pandemic tore through the country.

The vast majority of tax returns are filed electronically and processing inside the IRS is mostly automated, he said. A shutdown would likely slow processing for a smaller pool of returns that cannot be handled automatically.

The IRS had to cope with massive backlogs because of the pandemic. A longer shutdown might cause a buildup now, said Rettig - though the agency's ability to handle documents and piles of paper has significantly improved from even a few years ago, he noted.

The inventory of pending paperwork and stalled returns has already been increasing between the smaller staff and the record-long fall shutdown, according to the Treasury Inspector General for Tax Administration report on Monday. The backlog of correspondence and unprocessed returns grew to 2 million in December, an increase from 1.5 million a year earlier.

The backlog that isn't cleared will be carried into the current filing season, the report said, which may feed into delays processing returns and issuing refunds.

Delayed refunds aggravate taxpayers. If the wait is too long, they cost the federal government, because the IRS has to pay interest on the overdue refund. Last year, the agency paid $2.6 billion in interest, the Treasury Inspector General report said.

In the past year, Fox Rothschild's Lee has seen it become harder to receive IRS responses and get people on the phone. When he calls now, he plans for at least a 30-minute wait, if not an hour or more.

The explanation is simple, he said: "Fewer people on the other side."

For more tips and advice this tax season, check out MarketWatch's TaxWatch section.

Do you have questions about taxes that you would like to see covered in MarketWatch? We would like to hear from readers. You can write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Andrew Keshner

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January 30, 2026 18:44 ET (23:44 GMT)

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