The 2025 U.S. Federal Government Shutdown: What’s the Impact on the IRS?

The U.S Federal government shutdown began on October 1, 2025, because Congress failed to pass a funding bill for the new fiscal year. Under the Antideficiency Act, federal agencies cannot spend money without congressional authorization, so non-essential operations must stop until funding is restored.

🔍 Key Issues Behind the Stalemate

• Health Care Dispute:
  • Democrats demand:
    • Reversal of recent Medicaid cuts enacted under the One Big Beautiful Bill Act.
    • Extension of Affordable Care Act (ACA) tax credits that help millions afford insurance, set to expire at year-end.
  • Republicans insist:
    • Health care changes should be negotiated separately, not tied to government funding.
    • They proposed a “clean” short-term funding bill through Nov. 21, which Democrats rejected.

⚠️ Political Dynamics

• Republicans control the White House and both chambers, but Senate rules require 60 votes, so bipartisan support is needed.
• Both sides passed competing bills in late September:
  • Republicans/GOP bill: short-term funding only.
  • Democratic bill: funding plus health care provisions.
• Both failed in the Senate, triggering the shutdown.

🏛 Why It’s Different This Time

• The Trump administration has signaled willingness to use the shutdown to permanently cut federal jobs, a departure from past practice where furloughed workers returned after funding resumed.
• House GOP extended recess until Oct. 13, leaving the Senate to negotiate, which could prolong the shutdown.

📌 Scale of Impact

• About 750,000 federal employees furloughed; essential workers (military, law enforcement, air traffic controllers) work without pay.
• Non-essential services like national parks, research programs, and many agency operations are halted.
• Economic cost: previous shutdowns caused billions in lost output; this one could be worse if prolonged.

What’s the impact on the IRS? Here’s what happens after October 7 if the government shutdown continues:

✅ Current Situation (Through Oct. 7)

• The IRS has been operating normally using Inflation Reduction Act (IRA) funds.
• All ~74,000 employees are working, but paychecks are delayed until the shutdown ends.

⚠️ After October 7

• The IRS contingency plan only guarantees full operations for the first five business days (ending Oct. 7).
• Beyond that date:
  • No official plan announced for full staffing.
  • IRS is expected to scale back to “essential functions” only, similar to past shutdowns.

Likely Changes If Shutdown Persists

• Reduced workforce: Historically, about one-third of staff retained, focusing on:
  • Processing electronic returns and payments.
  • Criminal investigations and automated collections.
• Suspended or delayed services:
  • Paper return processing and mailed refunds.
  • Audits, appeals, and most taxpayer assistance.
  • Phone lines may close or have extreme wait times.

Deadlines & Obligations

• Tax deadlines remain unchanged:
  • October 15 extension deadline still applies.
  • Payments and filings are due on schedule.
• Penalties and interest continue to accrue.

What does it mean for taxpayers who are subject to the October 15 tax deadline?

Here’s what the October 15 tax deadline means for taxpayers during the government shutdown:

✅ Deadline Still Applies

• The October 15 extension deadline for 2024 tax returns remains firm. There is no automatic relief because of the shutdown. If you miss it, you risk late-filing penalties (5% per month, up to 25%).

✅ File & Pay on Time

• Filing and payment requirements under federal tax law are unaffected by the lapse in appropriations. You must:
  • File your return by Oct. 15.
  • Pay any remaining balance due—even if IRS staffing is reduced.[3][4]

✅ Best Practices

• E-file and use direct deposit for refunds. Electronic returns and payments will continue to process normally.
• If mailing, ensure your return is postmarked by Oct. 15 to be considered on time.

⚠️ What Could Go Wrong

• After Oct. 7, IRS may enter “essential-only” mode:
  • Phone support and in-person help may be unavailable.
  • Paper return processing and mailed refunds will likely be delayed.
  • Online systems could experience intermittent issues.

❌ No Shutdown Penalty Relief

• The shutdown does not excuse late filing or payment.
• Penalties and interest will accrue as usual unless you qualify for disaster-related extensions (e.g., federally declared disaster areas).

✅ Who’s Most Affected

• About 19 million taxpayers who filed for an extension in April.
• Businesses with C-corporation returns due Oct. 15.
• Taxpayers needing IRS assistance for identity theft or hardship cases.

Bottom Line:
File electronically, pay online, and act now.