- The IRS processed ninety-eight percent of one hundred seventy-seven million returns despite losing eighteen percent of its processing staff.
- Paper return wait times doubled to thirty days as systems outages forced the agency to use private contractors.
- New 2026 tax policies impact immigration filings, with U-S-C-I-S implementing stricter evidence rules for naturalization applicants.
The IRS processed about 98% of the 177 million returns received during the 2026 filing season, maintaining last year’s rate despite staff losses and aging technology.
The Government Accountability Office reported the figure in a preliminary review released August 10, 2026. The report said unavailable processing systems and reduced staffing delayed paper returns.
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Paper filers waited longer. Individual paper returns took an average of 30 days, compared with 16 days in 2025. Business payroll returns filed on Form 941 averaged 72 days.
The delays came as the agency’s Submission Processing unit lost 18% of its staff. The unit had 8,100 employees, down from 9,900 the previous year.
The wider personnel loss was larger. More than 28,000 employees left the tax agency between January 2025 and March 2026.
Refunds still moved at scale. The department issued $296 billion in refunds, 17% more than in 2025, while the average refund increased 11% to $3,275.
Outside vendors absorbed millions of paper returns
System outages pushed the tax agency toward private scanning contractors. It sent 3.7 million business paper returns to outside vendors, a 725% increase over 2025.
The GAO report, titled 2026 Filing Season: Preliminary Observations on IRS Performance and numbered GAO-26-109074, linked the delays to unavailable processing systems and smaller staffing levels. The overall processing percentage therefore masked a sharper divide between electronically handled returns and paper submissions.
| Measure | 2026 result | Comparison |
|---|---|---|
| Returns processed | About 98% of 177 million | Same percentage as last year |
| Individual paper returns | 30 days average | 16 days in 2025 |
| Business payroll returns, Form 941 | 72 days average | — |
| Submission Processing staff | 8,100 employees | 9,900 the previous year |
| Business paper returns sent to vendors | 3.7 million | 725% increase over 2025 |
The figures show how the agency preserved its headline processing rate while relying more heavily on outside capacity. That approach did not eliminate delays for people whose returns required paper handling.
New deductions added pressure to processing systems
The filing period was the first to apply provisions from the One Big Beautiful Bill Act, signed into law on July 4, 2025. The law created deductions for tips, overtime and car-loan interest.
The car-loan deduction requires vehicle identification numbers, adding another data field to the processing workload. The new provisions also increased demands on information-technology systems already strained by outages.
The law changed eligibility for the American Opportunity Tax Credit. Claimants must provide a valid Social Security Number, which excludes many Individual Taxpayer Identification Number holders and undocumented students from claiming the credit.
The measure also directed $170 billion to the Department of Homeland Security for immigration enforcement and detention expansion.
Tax records now intersect with immigration filings
A USCIS policy alert issued August 5, 2026, changed the procedural risk for some applicants who submit incomplete evidence. Under Policy Alert PA-2026-05, officers may deny certain benefit requests without first issuing a Request for Evidence or Notice of Intent to Deny when required initial evidence is missing or eligibility has not been established.
That standard applies to applicants whose naturalization or green-card cases depend on proof of tax compliance. People filing Form N-400 or seeking permanent residence may face denial without an opportunity to answer an evidence request if they do not provide complete tax transcripts or other compliance records.
The policy alert concerns immigration benefits, but tax documentation can become part of those cases. Applicants therefore may need records that show both filing history and compliance.
A federal judge ruled on February 26, 2026, that the tax agency violated the law 42,695 times by improperly sharing taxpayer addresses with Immigration and Customs Enforcement. A memorandum of understanding signed in April 2025 nevertheless allows ICE to cross-check tax records to identify people for deportation.
Refund delivery changes created another source of delay
Executive Order 14247 began phasing out paper refund checks. Taxpayers who did not provide direct-deposit information had their refunds frozen and received CP53E notices.
Those notices require recipients to update bank details within 30 days to avoid additional delays. The change applied while the department was issuing more refunds overall, including the record figure reported for the season.
The filing period also included relief for some federal employees. On April 1, 2026, Treasury Secretary Scott Bessent announced a 30-day automatic filing extension for Department of Homeland Security employees affected by a partial government shutdown.
The relief included penalty and interest protection. Bessent said the continued shutdown had created unnecessary disruptions and that Treasury and the tax agency would provide the extension.
The department’s next filing period will inherit the staffing gap, the expanded use of scanning vendors and the technology demands created by the new deductions. Processing times and refund delivery will continue to depend on how much work arrives electronically and how much requires paper handling.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.
