The IRS has been experiencing backlog since the pandemic, but plans to hire more employees and make upgrades for a smoother tax season in 2023.
But, inflation may push some taxpayers into a higher tax bracket.
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IRS hiring thousands of employees
The IRS recently received $80 billion in funding. Some of the funding will go towards hiring new workers and onboarding them quickly. The IRS released a report finding that the agency could use the funding to hire 86,852 employees.
However, the agency also found that as many as 50,000 employees could leave in the next few years. This would mean even with 86,852 new hires, the IRS still won’t be close to netting 87,000 new workers. That puts the agency nowhere near doubling its workforce. Right now, the agency has 25,000 less employees than they did 20 years ago. Not only does the IRS have less people working, but they also have more work to do. The agency desperately needs new staff to fill longstanding vacancies. Having more work to do and less people to do it, has resulted in more uncollected taxes and a growing on the tax gap.
Ron Sanders is a former IRS chief human resources officer. He said that the IRS has overcame the biggest hurdle in the hiring process– getting the funding. However, they will still face challenges before being able to bring on tens of thousands of new employees. The IRS will also have to rebuild its internal systems to support the hiring surge after years of losing staff– but, that will take some time. Right now, staffing levels at the IRS are comparable to the level in the 1970s– despite a much larger workload now.
Other experts are concerned that the IRS is not equipped to handle the influx of hiring. The Treasury Department has said it will formally unveil its operational plan for the hiring over the coming months. However, they have shared that the process is well underway.
IT upgrades
In addition to new employees, the IRS is aiming to provide a much higher level of service. This is especially during next year’s filing season. If the IRS plans to do this, the agency will also need to upgrade their IT systems.
Treasury Secretary Janet Yellen said that IRS employees at an agency office in New Carrollton, Maryland that the agency will staff up and modernize its IT ahead of next year’s filing season. This will be done in order to better assist taxpayers over the phone, in person, and online. The $80 billion in funding for the IRS comes from the Inflation Reduction Act. The funds will be used to upgrade IT systems and hire thousands of employees over the next ten years. Yellen said the IRS will staff up call centers to provide at least an 85% level of service next filing season. They will also cut the average hold time for taxpayers on the phone in half, making it less than 15 minutes.
During the last filing season, the IRS had a 10-15% level of phone service, meaning employees answered less than two out of every 10 incoming calls. The agency plans to hire an additional 5,000 call center representatives by the end of the year. This year, tax returns will be processed more quickly and returns will get to you faster.
Since the start of the Covid-19 pandemic, the IRS has faced a major backlog of paper tax returns that take longer to process than electronically filed returns. The IT improvements will allow taxpayers to resolve issues more quickly and may reduce the number of calls to the IRS for assistance.
The IRS will also be increasing their enforcements on tax collection to help close the growing tax gap. The IRS estimates that they will be able to collect $7 trillion in uncollected taxes over the next decade. The top 1% of US earners accounted for an estimated one-fifth of unpaid taxes in 2019, about $160 billion in total.
Changing tax brackets
Each year the IRS makes adjustments to account for inflation. These adjustments impact a variety of things from individual tax brackets to how much you can save in your individual retirement account. With inflation nearing a 40 year high, experts think major changes are in store for taxpayers. The IRS makes these changes annually to avoid “bracket creep.” Without these adjustments workers who received pay increases to keep up with inflation would be bumped into higher tax brackets. This bracket bump would be very disappointing because in that situation, their standard of living did not change.
This year, taxpayers could see some of the biggest changes in decades due to inflation. Inflation hasn’t been this high since the 1980s. Although changes are expected, the IRS won’t announce the until October or November. This is because the agency relies on a formula based on inflation data for calculating the new tax brackets and other limits. Experts are predicting an adjustment reaching upwards of 7%.
Tax brackets determine the tax rate you’ll pay on each portion of your income. For example, a single worker with a taxable income this year is $40,000 will pay 10% on the first $10,276. Then, they will pay 12% on their earnings between $10,276 and $40,000.
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