Every tax season brings its own challenges; however, the upcoming months are shaping up to be a high-stakes tax Super Bowl, with major legislative changes, IRS workforce disruptions, and tight development timelines for federal and state systems increasing pressure on tax professionals. After a year marked by a 43-day government shutdown, significant staff departures, and increasing manual-process backlogs, the Internal Revenue Service is preparing for tax season with fewer experienced workers and potentially higher inventory levels. This occurs as millions of taxpayers face numerous legislative and regulatory changes.
Now throw into the mix delays in updating federal forms, schemas (digital instructions that tell tax software exactly how a tax return must be formatted to be accepted electronically), and instructions that cascade into delays at the state level, further impacting the tax prep and review window.
"As we head into this filing season, what stands out most is the amount of change that's still in motion, particularly around how states respond to recent federal legislation. From a taxpayer and preparer perspective, that means more moving pieces for planning, compliance, and software readiness," said Jennifer West, vice president of global content, global tax and trade at Thomson Reuters, who anticipates the season will be "manageable but compressed."
For tax professionals, preparation, communication, documentation, and the use of innovative technology will be especially critical.
"This is our tax Super Bowl. This year is as big as it gets for tax professionals. We have this massive legislation that we're implementing. It's not quite as high a change as the Tax Cuts and Jobs Act, but beyond that, if you look at tax legislation over the last 20 years, it's the next biggest federal legislation that we've seen. That, coupled with the reduction in force at the IRS this year and then the longest-ever federal government shutdown — all of these things are just another headwind to us getting the forms, to be able to develop them for our customers, and also getting the guidance from the agencies," said Karin Anderson, vice president of tax compliance solutions at Wolters Kluwer Tax and Accounting US.
Added Anderson, "With all of that going on, it really is shortening that window for tax software development, and then also for tax return preparation by the CPAs and the tax return preparers. So it's creating this kind of pressure cooker of stress, and my team — we're calling this the tax Super Bowl. And I think even if everything went perfectly and goes perfectly, it's still going to be a really intense season, because the more changes and variances that we have with a high-change year like this, the higher the headwinds."
A struggling IRS
Doug O'Donnell, a senior managing director of the national tax practice of Big Four firm KPMG in Washington, D.C., agreed; he anticipates the season will be "challenging" for several reasons, including the hurdles facing the IRS.
As detailed in a September 2025 report by the Treasury Inspector General for Tax Administration, several risks could impact the IRS's performance in 2026. These risks stem from factors such as significant workforce cuts, postponed modernization initiatives, and new legislative mandates.
According to the report, as of May 2025, the IRS lost between 17% and 25% of staff in submission processing, accounts management, field assistance, return integrity compliance services, and IT. For this tax season, the TIGTA report stated these reductions could lead to:
- Delays in processing 2026 tax returns;
- Larger backlogs, including the anticipated increase in accounts management inventory;
- Fewer taxpayers served in person at Taxpayer Assistance Centers; and,
- Reduced fraud detection.
Within the IRS's accounts management, for example, the adjustments inventory — such as the backlog of taxpayer cases needing manual review, including correspondence issues and injured-spouse claims — could reach about 6 million cases in FY 2026, the report stated. This would make the backlog almost 2 million cases larger than the high levels seen during the pandemic and twice the size of the FY 2025 backlog, which was roughly 3 million cases. This projected increase indicates significant pressure on the IRS's ability to resolve taxpayer issues promptly.
Also, the TIGTA report warned that workforce reductions, particularly a 25% cut in IT staff, pose significant risks to the IRS's ability to prepare for the 2026 filing season. IT shortages could prevent timely updates to tax processing systems, which must incorporate inflation adjustments, expiring provisions, and major changes required by the newly enacted One Big Beautiful Bill Act, including updates to tax forms, schedules, schemas, and business rules.
At the same time, the IRS's Zero Paper Initiative, aimed at digitizing 78% of all paper-filed returns and compensating for staffing reductions, is already falling behind schedule. Of the 800,000 returns sent to the contractor in May 2025, 600,000 had to be returned for manual processing, according to the report. The initiative for the 2026 filing season focuses on using contractors to digitize the paper-filed forms.
"The IRS will need to hire additional staff for the 2026 filing season to process paper-filed tax returns if it is unable to scan and electronically process all paper-filed Forms 940, 941, and 1040, as it expects," TIGTA stated in the report, noting that it will "continue to monitor the impact of IRS workforce reductions and the status of the Zero Paper Initiative as the IRS prepares for the 2026 filing season."
Discussing the staffing constraints at the IRS, O'Donnell said, "The Taxpayer Services Division is led by very experienced leaders. That leadership team is largely intact, and they know how to do their job well. This is something they've been doing for decades. They have a lot of great employees, but they just don't have the complement of employees needed to operate effectively in the hybrid environment which the IRS has for this type of work. And when I say hybrid, many of these activities cannot be done digitally or systemically. They require some level of manual intervention, which means, at the current time, until it's fully digitalized, you're going to need to have many thousands of human beings doing this work, and that requires a lot more of them than they have."
Said Thomson Reuters' West, "Tax professionals should be attentive but not alarmed. The IRS has made progress on modernization in recent years, and it's managing significant changes to the Tax Code, workforce reduction, and continued high expectations from taxpayers and practitioners. Operational capacity matters most when there are spikes in questions, amended returns, or complex issues that require human review. In those areas, staffing levels, training, and technology improvements all affect how quickly the IRS can process returns, correspondence and notices. For practitioners, the practical takeaway is to assume that high-quality, well-documented filings will still move through the system more smoothly, while more complex or incomplete submissions may encounter longer processing times."
Legislative and regulatory changes
The season kicks off under one of the most complex legislative and regulatory environments that tax professionals have seen in years. The recently enacted OBBBA introduces sweeping changes that impact both individual and business taxpayers. For tax practitioners, communication and managing client expectations will be critical.
"The most significant impacts this year stem from the OBBBA federal changes and state conformity and decoupling. When states selectively conform to, or diverge from, federal provisions, it creates complexity in areas such as business deductions, depreciation, and addbacks," said West. "Taxpayers operating in multiple states, or with complex entity structures, will see the biggest impact as they navigate different rules for the same underlying federal provisions."
Key individual provisions. To take a deeper dive, several individual provisions stand out and could add complexity this tax season.
"On the individual side, my sense is that excluding some tips and some overtime from income, is going to be challenging. That's going to create some issues in terms of taxpayer call demand. There are some changes to the Social Security benefits taxation, and the deductibility of interest on automobile purchases for certain types of automobiles and for certain income levels. I think there could be confusion and challenges with those provisions as well, and that's part of what's going to drive demand for IRS services," O'Donnell said.
Among the changes brought by the OBBBA is that qualified tips are not taxed, starting with the tax year that begins after Dec. 31, 2024. Qualified tips are cash tips received by someone in an occupation that customarily and regularly receives tips.
The deduction, which is available whether or not the taxpayer itemizes deductions, is capped at $25,000 per tax year. It phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
"I think that there are some taxpayers that are not going to realize that these are subject to the caps and the limitations. So they might come in to meet with their tax return preparer expecting all of their tips … to be subject to the deduction, not realizing that there's going to be a limit there. So I think just taxpayer confusion around that, and not knowing that there are limits, could be a potential pain point. And then also the cash tips, just with record-keeping and documentation around that. And this legislation was passed halfway through the year, but applies to the entire year, so in the first half of the year, people might not have kept as good documentation in anticipation of this provision," said Wolters Kluwer's Anderson.
Additionally, a federal income tax exemption applies to a specified amount of qualifying overtime pay for tax years 2025 through 2028. This allows certain workers to deduct up to $12,500 ($25,000 for joint filers) on their tax return. The deduction phases out for taxpayers with MAGI over $150,000 ($300,000 for joint filers).
"The new deductions for tips and overtime may cause confusion, since employers/payers will not be required to report tips and overtime separately from wages. The IRS just provided guidance for people who receive tips or overtime, so there will be various places and documentation that accounting professionals will need to use to identify tips and overtime, since information returns like W-2s and 1099s will remain unchanged for tax year 2025," said Lisa Greene-Lewis, a CPA and tax expert with Intuit's TurboTax. "In addition, people have been confused, thinking there will be no taxes on tips or overtime, when the new provisions are deductions capped at $25,000 for tips and up to $12,500 single ($25,000 married filing jointly) for overtime."
Added Greene-Lewis, "Because tips will not be reported separately for tax year 2025, filers will get transition relief, so there may not be a lot of scrutiny, but that is an area where practitioners should stay close to the guidance issued and any updates."
Under the OBBBA, there is also a new deduction for certain taxpayers aged 65 and older. It is limited to $6,000 annually, starting in 2025. For married seniors who both qualify, they can claim up to $12,000. The deduction phases out for higher-income taxpayers. To qualify, a taxpayer must be at least 65 on or before the last day of the taxable year.
Along with answering client questions and managing expectations, practitioners must verify each client's eligibility, such as confirming their age and Social Security number, and calculate MAGI to determine if the full deduction applies or phases out for those taxpayers seeking the senior deduction.
There's also the car loan interest deduction. Effective for 2025 through 2028, eligible individuals might be able to deduct up to $10,000 annually in interest paid on qualifying auto loans. The deduction phases out for taxpayers with MAGI over $100,000 ($200,000 for joint filers). However, there are important restrictions. For example, a qualified passenger vehicle is a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating of less than 14,000 pounds and that has undergone final assembly in the United States. It must be purchased for personal use and meet other eligibility criteria.
Key business provisions. Several business provisions are also top of mind heading into the tax season, such as the return of 100% bonus depreciation and domestic research or experimental expenditures, as well as the Section 179 deduction limit, to name just a few.
The OBBBA has permanently restored 100% bonus depreciation for qualifying property placed in service on or after Jan. 19, 2025. It had begun phasing out in 2023, was scheduled to drop to 20% in 2026, and would have been entirely phased out thereafter. The legislation also introduces a new category, qualified production property, which expands bonus depreciation rules to certain real property used in qualified manufacturing activities.
Domestic research and experimental expenditures, paid or incurred in tax years beginning after Dec. 31, 2024, are now eligible for immediate expensing under a new code provision. However, foreign research costs must still be capitalized and amortized over 15 years.
Additionally, eligible businesses may deduct previous domestic research and experimental expenditures, and there are specific retroactive deduction rules for small businesses with average annual gross receipts of $31 million or less.
OBBBA also raises the Section 179 deduction limit to $2.5 million, with a phaseout threshold of $4 million (indexed for inflation). This change takes effect for tax years starting after 2024.
When discussing the wave of changes, West said, "Credits and deductions that are both targeted and highly technical tend to create the most confusion and risk. Any provision that depends on detailed eligibility criteria, phase-outs, or multiple layers of documentation can be challenging when rules are evolving or guidance is still being refined. For preparers, the key is understanding not only how a provision works federally, but exactly how each state has chosen to conform or decouple, and making sure software and due diligence processes are aligned to those distinctions."
The impact of the Trump Account
While the Trump Account, a new type of individual retirement account designed for eligible children, might not directly impact taxpayers' tax returns this season, practitioners can expect a flurry of questions from clients.
The Trump Account can be opened for an eligible child who has not turned 18 by the end of the year in which a parent or guardian makes the election, with contributions starting on July 4, 2026. As part of a federal pilot program, the government will make a one-time $1,000 contribution for each elected child who is a U.S. citizen born between Jan. 1, 2025, and Dec. 31, 2028. As outlined by the IRS, an employer may contribute up to $2,500 per year to a Trump Account of an employee or an employee's dependent. Pilot program contributions, qualified general contributions, and qualified rollover contributions are not subject to an annual contribution limit. However, all other contributions are subject to an aggregate annual limit of $5,000.
"This is brand-new," said Wolters Kluwer's Anderson. "It's a new type of individual retirement account for eligible children that was enacted under the new legislation this summer. The IRS just issued draft guidance on this Dec. 2. So prior to the guidance coming out, there have been a lot of questions about this, just with tax professionals, generally. They also issued the draft form [on Dec. 2]. It's the Form 4547. It is how to establish the Trump Account and enroll in this pilot program. It provides a way to set up the account for qualified children by filing this Form 4547 with the taxpayers' Form 1140, so they can file it with their 1140 this summer. Contributions can't be made into these Trump Accounts before July 4, 2026. So I think there's going to be a lot of questions by taxpayers to their preparers around the Trump Accounts, just because of the nature of this being brand-new. I think tax return preparers are going to have a lot of questions about it, too."
Managing risks, client expectations
For a successful tax season, it is especially important to gather records early, educate clients, streamline workflows, leverage innovative technology, prioritize electronic processes, and time filings strategically. For starters, firms should update client intake questionnaires and organizers to capture the expanded data points needed for new and revised credits, deductions, multistate filings, and ownership or structural changes.
Furthermore, practitioners should update their due diligence checklists, especially for high-risk areas such as refundable credits, multistate business activities, and complex entity structures, ensuring that these checklists align with current federal and state guidance.
Building workflow time for late-season regulatory and software updates is also essential, as is adopting modern technology. With rapid advancements in automation, artificial intelligence, and generative AI, practitioners can delegate routine tasks and dedicate more of their time to higher-value advisory work. Leveraging technology and increased automation not only eliminates manual tasks but also enhances accuracy and efficiency.
Communicating with clients and managing expectations are also crucial this season, as many taxpayers are likely to enter the filing season with misconceptions about new provisions. Setting realistic expectations, explaining the impacts, and requesting records early can help prevent delays. Practitioners should emphasize the importance of complete documentation to support their positions, especially given the number of new provisions this year.
From a filing mechanics perspective, e-filing and electronic payments should be the default whenever possible. E-filing offers faster acknowledgment of receipt, more predictable processing, and fewer errors than paper returns. Direct deposit of refunds and automatic debit for payments further streamline the process. If an amended return is needed, practitioners should verify that the original return has been fully processed before submitting the amendment to reduce IRS account confusion.
These steps together can help practitioners reduce risk, boost efficiency, and achieve better results. "I would emphasize that while this filing season will present its share of challenges, it also highlights the strength of collaboration between tax professionals, technology providers, and government agencies," West said.
He added, "For practitioners, the goal isn't to predict every change, but to build resilient processes that can adapt as the rules evolve. If firms invest now in staying informed, sharpening their workflows, and using tools that keep pace with federal and state developments, they'll be well-positioned to guide their clients through a complex season with confidence."
