The Internal Revenue Service characterizes the 2026 tax filing season as a success.
Taxpayers who were able to get through the processing system electronically without human intervention had a smooth tax season. Of 134 million individual tax returns filed, 98% were filed electronically. Of those returns, 80% received a refund, and 98% of those refunds were received electronically. The average refund was $3,400, up 11% from 2025, due largely to the new tip, overtime, and car loan interest deductions.
However, for paper return filers, taxpayers sending a check with their tax return, or taxpayers requesting a check for their refund, the process was much slower.
Paper returns and checks
As the IRS tries to transition away from sending or accepting checks, for the 2026 filing season, the agency still accepted checks so long as all of the required identifying information was on the check, a Form 1040-V accompanied the check, and the proper lockbox address was used for sending a check. If the taxpayer did not provide accurate direct deposit information for a tax refund, they received a Form CP53E requesting direct deposit information or why that information could not be provided. If the IRS did not receive the direct deposit information within 30 days, it processed a paper check within about six weeks. Certain hardship situations also permitted a paper check.
Acceptance and issuance of paper checks is likely to be even more restricted in the next tax season. Around 830,000 taxpayers had their refunds delayed due to the move from checks.
Mailbox rule
The change in the United States Postal Service rules on date-stamping mail may also have had an impact on tax returns that will be considered timely filed. The post office will no longer guarantee that the date stamp on the mail will be the date it was dropped off at a post office location. Instead, it will not be stamped until it is processed, which might be a day or two later.
Practitioners are suggesting taking paper returns to the post office counter and requesting that the return envelope be stamped right there at the counter, or sending them by registered or certified mail.
IRS help lines and mail
Practitioners reported difficulty during the filing season trying to reach the IRS by phone. They also reported a lack of prompt replies to mailed responses to IRS notices. Those notices continued to be automatically released by IRS computers while the responses still sat unread in IRS offices.
Practitioners with a Tax Pro Account reported an easier time with tracking document uploads. They also reported an easier time tracking the status of returns and refunds when the taxpayer had Individual Taxpayer Identification Numbers set up through ID.me. Another problem was slow processing of powers of attorney, making it difficult to timely assist clients with issues.
OBBBA issues
The IRS continued to issue guidance on tax changes under the One Big Beautiful Bill Act as the tax season progressed. Final regulations on the tip income deduction were not issued until April 10, 2026, effective June 12, 2026. Indications are that there are a variety of problems with tax returns claiming the tip, overtime, and car loan interest deductions, largely related to inability to reconcile the deductions claimed on tax returns with the information reported by employers or car loan lenders.
Some taxpayers, in calculating the overtime deduction, may have treated the overtime reported on the W-2 or 1099 as qualified overtime, a figure that employers were not required to provide for the 2025 tax year. Around 25 million tax returns claimed the overtime deduction, many more than forecast.
Some taxpayers may have treated qualified tip income as including service charges and other non-qualified tips since, again, employers were not required to report qualified tips on the W-2. Taxpayers may also have failed to make sure that they were in a qualified occupation for the tip deduction.
Some car loan lenders failed to provide supporting documentation to the IRS for the car loan interest deduction.
Around 30 million tax returns claimed the new senior deduction, with some likely overlooking the relatively low phase-out income level and relatively rapid phase-out rate.
Other OBBBA planning issues complicating 2025 tax returns included bonus depreciation changes with two different rates before and after Jan. 19, 2025. The new, higher, SALT deduction limit helped taxpayers; however, it expires again after a few years, pointing to the continued viability of use of the pass-through entity tax. Many taxpayers also had to deal with expanded digital asset reporting on Form 1099-DA for 2025.
2026 tax issues
A few of the OBBBA tax changes create planning issues for 2026. For charitable contributions, these include the new charitable deduction for non-itemizers and the floors on individual itemized and corporate charitable contributions. Also, wealthier taxpayers will want to look at the loss of the benefit of the 37% tax bracket for itemized deductions.
Options for setting up and funding Trump accounts will also be a 2026 planning issue, with the scope open to all children under age 18, not just those born between 2025 and 2028, eligible for a $1,000 contribution from the federal government, with perhaps a technical correction required to clarify the tax treatment of that $1,000 contribution.
Also, new for 2026 tax planning will be the 1% excise tax on overseas remittances, tariff refunds and their taxation will also be a focus of planning for 2026, especially for importers but also for retailers and even potentially for consumers. Planning for Employee Retention Credit denials through refund claims or administrative protests will continue in 2026, with some two-year deadlines occurring this year.
2026 tax legislation
Both the House and Senate tax-writing committees are working on bills focused on various tax administration issues. This includes greater independence for the Taxpayer Advocate and IRS Appeals, whistleblower protection, and increased use by the IRS of bar codes, bar code scanning, and optical character recognition. Congress is also considering:
- Expanded disaster tax relief for 2026;
- Allowing the teacher deduction for early childhood educators;
- A tax exclusion for damages received as a result of any sexual act or conduct; and,
- Restoration of the full gambling loss deduction.
The White House is also proposing a further decrease in the budget for the IRS.
Court decisions
Recent court decisions are also raising several tax issues:
- The imposition of IRS penalties may require a jury trial;
- Possible recovery of penalties imposed during the over three-year long COVID disaster period; and,
- Who is properly treated as a limited partner for self-employment tax purposes.
Summary
Some of the problems with the 2026 tax filing season are likely to be resolved by the 2027 tax filing season, especially problems with some of the new OBBBA deductions; however, IRS funding issues are likely to continue to plague the next filing season. The IRS has at this point used up most of the additional funding from the Inflation Reduction Act, and continued funding cuts and staff reductions will likely extend current problems into the future as well.
