IRS kicks off 2026 tax season

The Internal Revenue Service officially opened the 2026 tax-filing season Monday amid changes from the One Big Beautiful Bill Act, staffing and budget cuts at the agency, a snowstorm that paralyzed transportation across the country, and the threat of a possible government shutdown later this week.

The IRS said it expects approximately 164 million individual tax returns to be filed for tax year 2025 before the tax deadline on Wednesday, April 15.  

"As America celebrates its 250th anniversary, the IRS and its employees are excited to once again serve American taxpayers in meeting their tax filing obligations during the 2026 filing season," said IRS CEO Frank Bisignano in a statement Monday. "Not only does 2026 commemorate the 250th anniversary of the signing of the Declaration of Independence, but it also coincides with the 40th anniversary of electronic filing. Just as we did back in 1986, today the IRS encourages taxpayers to speed the processing of their returns by using e-file, instead of paper. And to speed the processing of any refund due, we also encourage the use of direct deposit."

The IRS and Trump administration officials are predicting larger tax refunds this year as a result of the OBBBA's tax cuts and new tax deductions for overtime, tips, senior citizens and more, and the decision not to change withholding tables last year. Last year, the average tax refund averaged $3,004 last year, according to IRS statistics, but according to an analysis by the Tax Foundation, average tax refunds will be between $300 and $1,000 larger compared to a typical year, depending on the taxpayer's circumstances.

The IRS is predicting that most tax refunds will be issued within 21 days. Taxpayers will no longer be receiving paper checks this year, in keeping with an executive order from President Trump. The IRS began phasing out paper checks on Sept. 30, 2025, so most taxpayers will now need to provide their bank routing and account numbers so direct deposits from the IRS can be sent to their bank accounts. Taxpayers can track their tax refund status using the Where's My Refund? Online tool, the IRS2Go app, or their IRS Individual Online Account. 

Even though the IRS issues most refunds within 21 days, some tax returns will need extra review and could take longer, the IRS warned. The IRS anticipates most refunds for the Earned Income Tax Credit and the Additional Child Tax Credit will be available in bank accounts or on debit cards by March 2, 2026, for taxpayers who opted for direct deposit and have no other issues with their tax returns. Some taxpayers may receive their tax refund earlier, however, depending on their financial institution. The IRS's Where's My Refund? tool will provide projected deposit dates for most early EITC/ACTC refund filers by Feb. 21, 2026.

Staffing and budget cuts

The IRS has been dealing with a series of job and budget cuts this past tax season that have proven to be especially challenging, with the latest shakeup in its top ranks coming just last week after a year in which there were no less than seven commissioners and acting commissioners at the top of the agency. The IRS also experienced a cut of over 25% of its staffing last year along with budget cuts, with more appropriation cuts of about 9% planned for later this year by Congress under the current funding bill. However, the funding may be held up as a possible government shutdown looms at the end of this month. After the killing of Minneapolis resident Alex Pretti over the weekend by Immigration and Customs Enforcement agents, Senate Democrats are threatening to hold up funding of ICE and the Department of Homeland Security without changes in ICE's policies. That could mean another government shutdown on the heels of the 43-day government shutdown last fall that temporarily halted IRS operations. 

"I didn't expect the tax season to actually kick off on the 26th; if I had had to place a bet, I'd have said maybe later in January or early February," Annie Schwab, franchise operations manager at Padgett Business Services, told attendees of a recent Accounting Today webinar on tax season. "That is a good sign, I believe."

The IRS has been rushing out guidance since the passage of the OBBBA last summer, including a FAQ page last Friday on the overtime deduction. 

"How do I figure out what the overtime is? The easiest takeaway is to look for those hours over 40 as defined under the Fair Labor Standards Act," said Tom O'Saben, director of tax content and government relations at the National Association of Tax Professionals, during the Accounting Today webinar. "Don't get so hung up on what a state law might be or what a different company may offer, such as differential pay or maybe triple pay on a Sunday, but what really is determined as overtime from the standpoint of the federal Fair Labor Standards Act?"

Cybersecurity concerns

The IRS noted Monday that over half of taxpayers use a tax professional to prepare and file their tax returns. The IRS is encouraging taxpayers to review its tips for choosing a tax preparer and learn how to avoid unethical "ghost" preparers.

The Treasury Inspector General for Tax Administration is also warning about the dangers of identity theft for taxpayers.

"Today marks the beginning of Identity Theft Awareness Week," TIGTA said in an email Monday. "It's also the first day that taxpayers can submit their 2025 tax returns to the IRS (many of which may result in refunds). Tax refunds are an attractive target for fraudsters — who steal people's identities to file fake tax returns to claim large ones."

It's offering a series of webinars this week to help protect taxpayers. 

The Treasury Department also announced Monday that it's canceling its contracts with the consulting firm Booz Allen Hamilton after one of its contractors, Charles Littlejohn, leaked the tax returns of billionaires, as well as hundreds of thousands of other taxpayers, to the media between 2018 and 2020. Littlejohn pled guilty in 2023 and was sentenced to five years in prison in 2024.

The Treasury Department said it currently has 31 separate contracts with Booz Allen Hamilton totaling $4.8 million in annual spending and $21 million in total obligations, but it's canceling them.

"President Trump has entrusted his cabinet to root out waste, fraud and abuse, and canceling these contracts is an essential step to increasing Americans' trust in government," said Treasury Secretary Scott Bessent in a statement. "Booz Allen failed to implement adequate safeguards to protect sensitive data, including the confidential taxpayer information it had access to through its contracts with the Internal Revenue Service."

OBBBA changes and penalty relief

The OBBBA made a number of changes in tax deductions, including new deductions for tips, overtime, senior citizens, and automobile loan interest for American-made vehicles, as well as raising the limit on deducting state and local taxes from $10,000 to $40,000. 

The Illinois CPA Society offered some tips Monday for a "frustration-free tax season." With the One Big Beautiful Bill Act temporarily raising the state and local tax deduction limit to $40,000 for tax years 2025-2029, many taxpayers will need to reassess whether itemizing their deductions or taking the standard deduction is best for them," said the ICPAS. "For the 2025 tax year, your itemized deductions would need to be greater than the standard deduction amount of $15,750 for single filers, $31,500 for married couples filing jointly, or $23,625 for heads of household for itemizing to be beneficial. For most taxpayers, the largest expenditures for itemization include state and local taxes (including property taxes), mortgage interest, charitable giving and qualifying medical expenses. If these items warrant itemizing your deductions, you'll know to gather the supporting forms and documentation."

The new deduction for seniors is another big change for this tax season, but like the "no tax on tips" and "no tax on overtime" campaign promises, tax professionals and their clients will need to be aware that it's a deduction and not a complete tax exemption.

"While President Trump proposed on the campaign trail to eliminate the tax on Social Security benefits, Congress was not able to achieve that goal since the budget reconciliation process under which OBBBA was enacted did not allow Social Security provisions," said Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting. "Congress instead enacted a Senior Deduction of up to $6,000 per year for persons with a Social Security number age 65 or older from 2025 through 2028 (potentially $12,000 for a married couple filing jointly).  A married couple must file jointly to claim the deduction.  However, the deduction starts to phase out at a relatively low Modified Adjusted Gross Income of $75,000  ($150,000 for joint filers) and is phased out completely at MAGI of $175,000 ($250,000 for joint filers). 

"The deduction is a below-the-line deduction, which means it is available to taxpayers whether they itemize or take the standard deduction; however, it does not reduce Adjusted Gross Income," Luscombe added. "Contributions from parents, family or friends are from after tax funds, are not deductible, and create basis in the accounts. Contributions from the federal government, other government entities, charities or an employer are treated as pre-tax contributions and are taxable on distribution. A new Schedule 1-A has been issued for use in calculating the Senior Deduction on the tax return. Seniors do not need to have started receiving Social Security benefits to be eligible for the deduction."

The IRS has provided some penalty relief on reporting tips and overtime as it continues to roll out guidance on the various provisions.

"With respect to the guidance that was issued for 2025, there were two elements," said Dan Lewis, vice president of government affairs at the payroll giant ADP. "The first one [in Notice 2025-62] that was issued was essentially penalty relief, providing relief for employers, payors and service providers related to reporting obligations for 2025 since it comes as no surprise to anyone, including the Treasury and the IRS, that companies weren't maintaining records and doing calculations related to tips and overtime in conformity with OB3, because nobody knew that was going to be the law at the time. The specific calculations related to tips and overtime, employers weren't prepared to report, and so while employers are encouraged to provide information reporting for their employees to help them calculate the deductions, there's ample relief for employers to the extent that they have challenges in doing so."

The IRS and the Treasury provided further relief with a second notice. "The second piece of guidance that came out [Notice 2025-69] related to options for employees and other workers who were making their calculations for eligible deductions for tips and overtime based on the information that they do have available," said Lewis, "whether it's provided by the employer to the extent that they're willing or able to do so, or whether the employee or worker is procuring that information from the documents and records that they have available, whether it be taking it off of the last pay statement, taking it off of a W-2 or 1099 that's available, taking it off of other wage reporting options that are available to them, as well as looking to certain tax forms with respect to the tip deduction."