MW Trump's IRS layoffs have some Americans asking: 'Why bother' filing taxes this year?

Andrew Keshner

Accountants say some clients are wondering if they should blow off their taxes amid IRS cutbacks

President Donald Trump has a skeptical stance on the Internal Revenue Service - and some people seem to be taking that as a green light to blow off their tax obligations.

The Trump administration reportedly started to lay off nearly 7,000 new workers from the IRS on Thursday, including many who work in enforcement. A day earlier, Commerce Secretary Howard Lutnick told Fox News that Trump's goal is to "abolish" the IRS and replace its tax revenue with tariff cash. Before leading the so-called Department of Government Efficiency, Elon Musk polled X users on whether the IRS's budget should be increased or "deleted." And Trump's pending pick to lead the IRS once backed a bill to eliminate the agency.

So why bother with taxes this year? Would a scaled-back IRS even miss a couple fewer income-tax returns? Does the agency deserve taxpayers' money when inefficiency is under the microscope? And will the IRS even be around much longer?

Those are the grumbles and gripes that accountant Matt Metras of MDM Financial Services started hearing this month, even before Thursday's layoffs. He's tried to dissuade clients and acquaintances who've wondered aloud about skipping taxes.

Metras reminds people that "although the president promised to abolish the IRS, it's not something easy to do - especially legally. I then remind them of the consequences of not filing, specifically racking up interest and penalties for no good reason."

After Thursday's job cuts, Metras, a cryptocurrency-tax expert, is anticipating he'll hear from more tax skeptics who are a little curious about not filing this year. "I 100% think these layoffs stoke the attitude," Metras told MarketWatch.

This year's tax season is already off to a slow start. Nearly one month into tax-filing season, the IRS has received approximately 1.7 million fewer tax returns than it had at the same point last year. The tax collector says it expects those numbers to balance out as filing continues.

Maybe it's at the margins and just social-media chatter - like the "taxstrike" hashtags that have been bubbling up on X, the social-media platform owned by Musk. But murmur on the margins seems to be getting a little noisier, some say.

"I have a couple people that are like, 'Why am I bothering with this? I hear the IRS is going away,'" said Joshua Youngblood, senior tax advisor at the Youngblood Group in Dallas. He said he's had versions of that conversation three or four times in February; most of the time, the clients are getting their information from social media, he noted.

"I talk them down, or they have the opportunity to find somebody else, because I'm not filing a fraudulent tax return," Youngblood said, adding he's worried the layoffs will fuel misperception that the IRS is closing.

For the millions of Americans who are planning to file their taxes, it's not immediately clear whether the midseason layoffs at the IRS will slow tax-refund processing times or gum up phone lines. There's a chance they could, according to critics.

"When taxpayers expect prompt customer service and smooth processing of their tax returns, the administration has chosen to decimate the whole operation by sending dedicated civil servants to the unemployment lines," said Doreen Greenwald, national president of the National Treasury Employees Union.

For now, Americans and the professionals helping them with their tax returns should keep filing as normal, said Melanie Lauridsen, vice president of tax policy and advocacy at the American Institute of CPAs. Tax preparers should be ready to tell clients about "the potential for delays in communications, processing or engagements from the IRS," she said.

But the question remains: How many people might think they have an opening to skip filing or hold back on telling the IRS about all their taxable income? It's a mistake people could come to regret, tax professionals told MarketWatch.

To be clear, tax collectors are still on the job, said Kevin Hassett, director of the White House's National Economic Council. "I think our objective is to make sure that the employees that we pay are being productive and effective," he told reporters Thursday.

The IRS was starting to dial up tax enforcement for rich people and businesses under the Biden administration. Tax experts have been anticipating less IRS enforcement ever since Trump won the White House and Republicans secured majorities in both chambers of Congress.

"There are many, many - more than 100,000 - people working to collect taxes, and not all of them are fully occupied," Hassett said.

The IRS did not respond to a request for comment.

The tax agency said it collected over $5 trillion in fiscal-year 2024, accounting for nearly all of the federal government's revenue. The IRS raked in nearly $100 billion through its enforcement efforts that year; that included pressing wealthy households to submit tax returns after they hadn't done so for years. The effort reaped nearly $175 million in owed taxes.

Danny Werfel, the IRS chief at the time, said staffers had certain records indicating these nonfilers were making taxable money. It was just a matter of having the staffing required to pursue those leads.

Werfel was a Biden administration appointee who resigned earlier this year. Former Congressman Billy Long, Trump's pick for IRS commissioner, has not yet been confirmed by the Senate.

'Think twice'

The IRS penalty for failing to pay taxes is 0.5% of the unpaid tax, while the failure-to-file penalty is 5%. The filing penalty climbs to 25% after five months.

There are complex rules for how the penalties can stack against each other, but the upshot is that punishment for skipping taxes can get "draconian," according to attorney Drew Allen, who represents people when the IRS and other authorities come knocking about their taxes.

"I'd caution folks to think twice about avoiding paying their taxes and filing returns on the hope that enforcement is going away," said Allen. "I only handle a small number of collection cases, but the biggest killer is always the interest and failure-to-pay penalties."

Even if the IRS slows enforcement, Allen said the taxman could turn more aggressive under future administrations - which would make an owed bill that much more expensive in the future.

There's no "conscientious objector" status to refuse income taxes, and there are criminal laws against tax evasion in more extreme cases.

It's too soon to know how the IRS layoffs will affect tax season, said Bob Kerr, principal at Kerr Consulting. But it's not too soon to think about what messages, real or perceived, are getting sent about the importance of following tax rules if the IRS's compliance staff is getting reduced.

"How corrosive is this thing that's happening right now?" he said. The idea that people can skip filing taxes and get away with it "turns the rest of us into chumps," he said. "I don't know about you, but I don't like feeling like a chump."

Many people make their money from their employee wages, and the IRS gets a copy of the W-2 form from their employers reporting that income. The agency will be expecting a return with that form in hand. "It's difficult to be cute about a W-2 return," Kerr said.

In Dallas, Youngblood emphasizes that the IRS is still open for business and ready to assess "nasty" penalties for people who owe taxes and don't file a return.

It's one way he's separating fact from hype for his clients. He's needed to explain that tipped income is still taxable, despite Trump's campaign-trail proposal to make tips exempt from taxes. Youngblood has also already had some clients asking when they can get their "DOGE dividend."

"There's a fundamental misunderstanding [of] how this works," he said.

What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out this form or write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Andrew Keshner

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 22, 2025 09:00 ET (14:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.