The Government Accountability Office recently released its
Individual paper returns took
The refund side of the story is worse.
By early April, the average time to issue a paper refund check had climbed to 36 days, up from 13 days in 2025. Nearly a tripling. Meanwhile, direct deposit refunds moved at a completely different pace. Nine in ten were issued within 21 days, with no comparable slowdown at all. The IRS also sent about 4.2 million notices to taxpayers who had not provided valid direct deposit information, warning that a paper refund would follow only after an additional six-week wait if they did not respond within 30 days. The GAO was direct about the effect: This process delayed millions of refunds.
Business filers were not spared. The average processing time for paper Form 941, the Employer's Quarterly Federal Tax Return, rose to 72 days in 2026. That is up from 45 days in 2025 and 25 days in 2024. Three years of steady, compounding deterioration for anyone still filing payroll tax returns on paper.
Why this happened
The GAO traces the breakdown to two overlapping problems, and both are worth understanding because neither is temporary.
First, staffing. The IRS lost approximately 2,900 Submission Processing employees by the end of fiscal year 2025, most through deferred resignation or early retirement programs. The Treasury approved the hiring of 1,600 replacement employees for the 2026 filing season, but a partial federal government shutdown pushed job announcements and hiring events back to December 2025. By early April, Submission Processing had hired only 1,158 of its 1,600 approved positions, about 72% of its target, and officials told the GAO they expected hiring and onboarding to continue into May. The unit that processes paper returns and answers taxpayer correspondence entered the filing season already short-staffed and stayed short-staffed through most of it.
Second, technology. The IRS's individual paper return processing system could not process 2025 tax year returns during the first six weeks of the filing season. A separate scanning system used for business paper returns was unavailable for the entire season. Agency officials attributed this to the loss of experienced IT acquisition staff, which delayed the programming updates the systems needed before filing season opened. This is the practical cost of losing institutional knowledge inside an agency that runs on decades-old infrastructure. You do not just lose headcount. You lose the people who know how to keep the machine running.
To compensate, the IRS leaned harder than ever on outside vendors. It sent about 3.7 million business paper returns to vendors for scanning, a 725% increase over the 443,000 sent the year before. By season's end, those vendors had scanned more than four times the volume of business paper returns that IRS employees processed directly. The workaround kept the system from collapsing, but it also means a growing share of sensitive taxpayer data is now passing through third party contractors rather than IRS employees. That carries its own risk, and it's worth remembering that a former IRS contractor was convicted in 2024 for stealing and leaking the tax return information of thousands of taxpayers. Outsourcing scale without outsourcing accountability is not a solution.
The bigger picture
None of this happened in isolation. It's tied in part to the
Despite everything above, the topline processing numbers looked fine. The IRS processed about 98% of the 177 million individual and business returns it received in 2026, the same share as 2025, and 95% of returns were filed electronically. On paper, pun intended, the season was a success. That is exactly what makes this report useful. The overall numbers hide the fact that the small remaining population still using paper — individuals and small businesses alike — is now absorbing all of the friction that the system used to distribute more evenly.
What this means for your clients
The lesson here is not subtle, and it's not going to reverse itself next season. If anything, the trend line points toward paper becoming slower relative to electronic filing every year, not less slow.
A few practical takeaways worth raising with clients directly:
Electronic filing is no longer just the convenient option. It's the only option with a predictable timeline. A 21-day direct deposit refund versus a 36-day paper check, with the paper number still climbing, is not a close call.
Direct deposit information needs to be current and correct before filing, not fixed after the IRS flags it. The 4.2 million notices sent this year for invalid direct deposit information turned an otherwise fast refund into a slow one for taxpayers who could have avoided it entirely.
Clients who file business payroll returns on paper, particularly smaller employers who have not fully modernized their payroll systems, should treat the 72-day average processing time for Form 941 as a cash flow planning problem, not just an administrative annoyance.
Anyone advising clients on amended returns should set expectations accordingly. Processing times there have historically run even longer than original paper returns, and nothing in this report suggests that dynamic has improved.
If a client insists on paper for any reason, document that the delay risk was disclosed. This is now a foreseeable outcome, not an occasional inconvenience, and it belongs in the conversation the same way any other known processing risk would.
The IRS has been telegraphing this shift for years. The GAO's report confirms what tax pros have known for years. The gap between paper and electronic processing has widened to the point where paper is no longer just a slower version of the same process. It's a fundamentally less reliable path through the system, one that will delay a taxpayer's refund by weeks. Clients need to hear that plainly, and they need to hear it before they file, not after they are six weeks into waiting for a check.
