IRS Workforce Cuts: Nearly 4,000 More Positions in FY2027

Last Updated: April 12, 2026 Reading Time: 7 min

The IRS wants to cut nearly 4,000 more positions in FY2027. The request is in the Treasury Department's congressional budget justification, where the administration frames the reductions as a managed transition to a leaner, more technology-driven agency. Critics say the math does not add up.

For IRS employees, this is a second wave on top of a first wave that already eliminated roughly 28,000 positions since January 2025.

Key Takeaways

• The IRS FY2027 budget proposes a net reduction of nearly 4,000 positions, bringing the agency below 74,000 employees.
• Enforcement funding would drop by 50% and operations support by 65% under the proposal.
• The IRS has already shed more than 25% of its workforce since Trump took office, going from 102,000 to under 76,000.
• The agency received OPM approval to offer VERA and VSIP of up to $25,000 to eligible employees.
• IRA funding clawbacks now total roughly $54 billion; remaining funds are projected to last only through FY2028.

What the IRS Is Proposing

The Trump administration's FY2027 budget request sets the IRS budget at $9.8 billion, a $1.4 billion reduction from current spending levels.

The administration calls it intentional rightsizing, not emergency downsizing. The argument is that automation and AI-assisted processing will let the agency maintain performance with fewer people.

That argument is hard to square with one fact: the IRS lost roughly 40% of its IT workforce and about 80% of its technology leadership during the 2025 cuts. You cannot automate your way out of a staffing problem when you have also hollowed out the team that builds the automation. The agency's legacy systems are decades old, and the modernization work funded under the IRA is now at risk of never getting finished.

The FY2027 budget documents acknowledge that IRA modernization funds are expected to run dry by fiscal year 2028.

How Many Cuts and Where

The nearly 4,000-position reduction is a net number. Within that, the budget proposes some reshuffling across divisions.

Division	Change	Notes
Enforcement	Down 17% of headcount; 50% funding cut	Largest absolute reduction
Taxpayer Services	Up 5% headcount; 8% funding cut	Offset by lower pay grades
Operations Support	65% funding cut	Legacy systems, IT

The enforcement division takes the hardest hit. This is where auditors, revenue agents, and criminal investigation staff work. The proposed 50% budget cut to enforcement, combined with a 17% headcount reduction, would leave this division at its smallest size in decades.

Taxpayer services is the one area seeing a slight headcount increase under the proposal. But the 8% funding cut means that increase comes with lower overall resources per employee.

The IRA Funding Context

To understand the scale of these cuts, you need to know what happened to the Inflation Reduction Act money.

In 2022, Congress gave the IRS nearly $80 billion over ten years to rebuild enforcement, modernize technology, and improve taxpayer services. The plan was to hire thousands of auditors focused on high-income and corporate compliance and to replace systems that date to the 1960s.

Here is what happened instead:

Year	Action
2022	IRS receives $79.4 billion in IRA funding
2023-2025	Congress rescinds approximately $42 billion
January 2026	An additional $11.7 billion is rescinded
Today	Roughly $26 billion remains
Projected depletion	Fiscal year 2028

Within two years, the IRA money runs out. After that, the IRS operates on a baseline budget with no supplemental funding and a workforce a third smaller than it was in 2024.

Impact on Taxpayers and Tax Season Processing

The 2026 filing season already gave taxpayers a preview.

Going into this year's filing season, the IRS lowered its phone service target to 70%, down from 85% the prior year. Senators from both parties warned in January that the season would be "a huge test." They were not wrong.

The returns most at risk for delays are those that require a human to look at them:

• Paper returns (still filed by millions of Americans)
• Amended returns (Form 1040-X)
• Returns flagged for identity verification
• Returns with mismatched income or credits
• Correspondence audits and notices

The National Taxpayer Advocate's annual report found service was adequate in 2025, but flagged serious concerns about 2026 and beyond. With fewer enforcement staff, audit rates will fall. That sounds like good news until you realize that lower audit rates reduce deterrence for everyone, which over time shifts the burden onto people who do pay.

Options for IRS Employees

If you work for the IRS, three formal separation programs are currently available.

VERA and VSIP

The IRS obtained OPM approval to offer Voluntary Early Retirement Authority (VERA) and Voluntary Separation Incentive Payments (VSIP). VSIP payments can reach up to $25,000.

VERA allows employees to retire earlier than they otherwise could under standard FERS eligibility rules. To qualify, you generally need to be at least 50 years old with 20 years of service, or any age with 25 years of service. Your agency must have OPM authorization (the IRS does).

VSIP is a cash buyout, paid as a lump sum, taxable as ordinary income in the year received.

One critical rule: if you already accepted the Deferred Resignation Program (DRP), you are not eligible for VERA or VSIP. These programs cannot be stacked.

See the full VERA/VSIP Guide for eligibility rules, financial trade-offs, and a checklist for making the decision.

Reduction in Force

If voluntary departures do not reach target levels, the IRS could move to formal Reduction in Force procedures. RIF follows a strict retention register process based on tenure, performance ratings, and veterans' preference. Employees with more service credit and strong performance ratings are better protected.

Under RIF, separated employees may be eligible for severance pay. Use the Severance Pay Calculator to estimate what you could receive based on your salary and years of service.

Transfers Within Government

IRS employees facing potential separation should check for open positions at other federal agencies. Treasury, SSA, and several other large agencies have hired from the IRS workforce in recent cycles. Transferring keeps your federal retirement service credit intact, preserves your FEHB coverage continuity, and avoids any gap in federal employment.

The Federal Workforce Outlook covers which agencies are growing versus shrinking if you need a broader view.

What to Do Now

The FY2027 budget is not final. Congress still has to pass it. But the direction is clear, and IRS employees who wait for certainty before planning are taking a real risk.

If you work at the IRS:

1. Find out whether your position is in enforcement or operations support. Those two divisions face the deepest cuts.
2. Check your VERA eligibility with your HR office. The qualifying age and service combinations are specific, and HR offices get slammed during these windows.
3. Model your FERS pension under early retirement vs. waiting. The FERS Retirement Calculator lets you run both scenarios in a few minutes.
4. Estimate severance pay if RIF is possible. The Severance Pay Calculator covers the full formula.
5. If you are considering a private-sector move, update your LinkedIn now. IRS agents are in high demand at accounting firms and law practices. FedShot can generate a professional headshot if your current profile photo is your PIV card.

If you are a taxpayer filing this year:

• File electronically. Paper returns face the longest backlogs by far.
• File before the deadline if you can. The further from the deadline, the fewer agents are available to handle issues.
• Respond immediately to any IRS notices. Delays compound quickly when the agency is short-staffed.

Estimate Your Separation Pay

If a RIF or voluntary separation is possible, get the numbers on paper before you decide.

The Severance Pay Calculator estimates your total severance based on your grade, salary, and years of service. The FERS Retirement Calculator shows your pension under early retirement compared to waiting to your standard Minimum Retirement Age.

Do not sign anything without running those numbers first.

Frequently Asked Questions

How many IRS employees are being cut in FY2027?

The FY2027 budget proposes a net reduction of nearly 4,000 positions. This comes on top of the roughly 28,000 employees the IRS already shed since January 2025, taking the workforce from 102,000 down to under 76,000.

Which IRS divisions are most affected by the cuts?

The enforcement division faces the steepest cuts, with funding proposed to drop by 50% and headcount by 17%. Taxpayer services funding would drop by about 8%, though headcount is proposed to grow slightly. Operations support faces a 65% budget reduction.

Is the IRS offering VERA or VSIP to affected employees?

Yes. The IRS obtained OPM approval to offer Voluntary Early Retirement Authority (VERA) and Voluntary Separation Incentive Payments (VSIP) of up to $25,000. Employees who accepted the Deferred Resignation Program are not eligible for VSIP.

Will IRS staffing cuts affect my tax refund?

They already have. During the 2026 filing season, the IRS lowered its phone service target to 70%, down from 85% the prior year. Paper returns, amended returns, and flagged returns face the longest processing delays.

What happened to the IRS Inflation Reduction Act funding?

The IRA originally gave the IRS nearly $80 billion. Congress has rescinded about $54 billion of that, including another $11.7 billion in January 2026. The remaining IRA funds, now roughly $26 billion, are projected to run out by fiscal year 2028.

Related Resources

• VERA/VSIP Guide 2026: Full eligibility rules, financial trade-offs, and a decision checklist
• Severance Pay Calculator: Estimate your RIF severance in minutes
• FERS Retirement Calculator: Model early vs. standard retirement scenarios
• Federal Workforce Outlook 2026: Which agencies are growing, which are shrinking
• DRP Deferred Resignation Program Cost Analysis: Background on the early separation programs

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Sources: GovExec, April 2026 | Federal News Network, January 2026 | Treasury FY2027 Budget Justification | ITEP, IRA Funding Analysis | IRS National Taxpayer Advocate Annual Report