October 22, 2025
It’s been several weeks since the federal government shut down on October 1, 2025. Since then, many agencies have closed or are operating with only partial staff. Economists estimate that each week of the shutdown could trim about 0.1 percentage point from quarterly GDP growth, roughly $6-7 billion in lost activity across the economy.
The IRS is among the agencies most affected. Roughly half of its employees have been furloughed, and only essential operations remain in place. Until funding is restored, taxpayers can expect slower communication and limited access to many IRS services, among other delays. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.
Each year, Congress must approve funding to keep federal agencies operating. When those appropriations bills are not passed by the start of the fiscal year, funding expires and a shutdown is triggered.
Federal spending falls into two categories. Social Security and Medicare, for example, fall under what’s called mandatory spending. Those benefits are set by law and don’t depend on annual votes. But agencies like the IRS fall under discretionary spending, which is funding that must be renewed every year. When that funding lapses, these agencies must suspend nonessential operations and furlough employees until new funding is approved.
Although this is considered a partial shutdown, it still limits how many federal employees can work and which services remain available to the public.
The IRS released a contingency plan prior to the shutdown that anticipated the use of multi-year funds such as those authorized in the Inflation Reduction Act of 2022 to maintain full operations for the first five business days of a funding lapse.
Once those temporary funds ran out, the IRS scaled back operations and furloughed about half of its 74,000 employees. That comes on top of a 25% reduction in its workforce since the beginning of 2025, due to retirements, budget tightening, and the deferred resignation program (DRP). This latest round of furloughs leaves the agency with its smallest active staff in years, just as many taxpayers and advisors are focused on year-end planning.
Additionally, taxpayers will want to note the following:
It’s unclear how long the shutdown will last. Lawmakers are still negotiating, and until new funding is approved, most agencies will continue operating with reduced staff. The IRS is no exception. Each week that passes adds to the backlog of returns, refunds, and correspondence waiting to be processed.
Taxpayers will likely feel the impact of the slowdown in a few key areas. Refunds will take longer, especially for those who filed extensions in October. Paper filings and amended returns are sitting in queues. Correspondence and audit work are on hold. These delays could continue well into 2026 if the shutdown stretches through the next few weeks.
The last major shutdown in 2018–2019 lasted 35 days and left the IRS months behind schedule. The agency eventually cleared the backlog, but it created frustration and confusion for taxpayers. This year could be even more complicated, as the IRS is also responsible for implementing new guidance under the One Big Beautiful Bill Act (OBBBA) before the next filing season begins.
Even with the government shutdown, filing deadlines and payment due dates have not changed, so taxpayers are encouraged to stay current. Submit returns and payments on time; this helps avoid penalties and interest once normal IRS operations resume. Taxpayers should keep electronic confirmations, payment receipts, and timestamps from e-file submissions as proof of compliance in case of delays or questions.
Refunds and tax credits may take longer to process, and businesses that rely on those funds as part of their cash flow should plan accordingly. Filing electronically and choosing direct deposit continues to be the most efficient way to reduce processing delays. Any legitimate correspondence from the IRS should still be answered and retained for future reference.
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Staying organized, meeting deadlines, and maintaining thorough records are the best ways to minimize disruption until operations return to normal. Ongoing communication with advisors will be key to keeping tax and year-end planning on track. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.