civil service

IRS Heads Into the 2027 Filing Season With No Commissioner, 28% Fewer Staff and the First Tip and Overtime Forms

The 2027 filing season, for tax year 2026, will be the first in which employers report qualified overtime pay on W-2 forms, under a new box 12 code. The IRS confirmed the reporting rules in August. Workers can deduct up to $12,500 of overtime pay, or $25,000 on a joint return, with the deduction phasing out above $150,000 of income for single filers. Similar reporting for tips is on draft 1099 forms.

The agency handling it is much smaller than two years ago, and has no commissioner.

The workforce

The Treasury Inspector General for Tax Administration reported in June that the IRS lost 31,273 employees between early 2025 and January 2026, while hiring about 2,000. That’s a net drop of 28%. Revenue agents, who do complex audits, fell about a third. The IT workforce lost 29%, or 42% counting staff reassigned elsewhere. Taxpayer services lost 11,330 people.

The budget follows. The IRS had 65,722 full-time equivalent positions funded in fiscal 2025 and 59,880 in fiscal 2026. The fiscal 2027 request is 56,137. It asks for $9.83 billion in total, 12% less than this year, with enforcement and technology each cut 18% and taxpayer services up 3%.

Leadership

Seven people led the IRS in 2025. Billy Long, confirmed in June 2025, lasted until August. Treasury Secretary Scott Bessent then served as acting commissioner until his time limit under the Vacancies Act ran out in March 2026. Since then the agency has been run by Frank Bisignano, who holds a newly created post of IRS chief executive, which doesn’t need Senate confirmation, while also serving as Social Security commissioner. About 46% of the IRS’s senior executives had left by January.

How 2026 went

Bisignano told the Senate Finance Committee in April that 2026 was “the most successful filing season in IRS history.” The record is mixed.

  • About 139 million returns were processed and the average refund was up 11%.
  • TIGTA found the average phone wait rose to 8.2 minutes from 3.4, and the IRS lowered its phone service target from 85% to 70%.
  • The National Taxpayer Advocate counted 48.1 million calls with 21% answered by a person.
  • More than 1,100 employees were moved involuntarily onto the phones from February.
  • In-person service fell 26%, and 169 of 353 walk-in centres had one or two staff.
  • Identity theft cases pending passed 500,000, with waits near two years.

The free Direct File programme, used by about 300,000 people in 2025, was scrapped before the 2026 season.

The technology risk

The new deductions need new forms, new processing code and new checks against employer data, all built by an IT staff that’s lost up to four in ten people. They run on top of the Individual Master File, the IRS’s core taxpayer record system, first built in the 1960s and still waiting to be replaced.

TIGTA is reviewing how the IRS implemented the tips and overtime deductions. Its readiness review for the 2027 season usually comes in December or January. For taxpayers, the first test is whether employers get the codes right on W-2s in January. For the IRS, it’s whether a smaller agency can handle a more complicated return without the help lines failing.