IRS's Annual Expenses for This Year
In the aftermath of the Inflation Reduction Act (IRA) of 2022, the Internal Revenue Service (IRS) was initially allocated a substantial sum of $79.4 billion in supplemental funding. However, this funding was later reduced to $37.6 billion as of March 2025 [1][2]. The remaining funds are available through September 30, 2031.
As of Q1 2025, the IRS has spent approximately $13.8 billion of the remaining IRA funding. The spending is divided among several major categories:
- Operations Support: $6.0 billion spent of a $25.3 billion allocation. This likely includes employee compensation, facilities, and contractor support necessary to execute core IRS functions.
- Business Systems Modernization (including technology projects): $2.7 billion of $4.8 billion. This funding mostly supports contractor-driven technology projects for IRS system updates.
- Enforcement: $2.7 billion of $3.8 billion. This includes IRS enforcement personnel and related costs.
- Taxpayer Services: $2.2 billion of $3.2 billion. This is spent on personnel for taxpayer help centers.
- Energy Security: $63.6 million of $500 million. This is spent on energy-related initiatives.
- Other (Direct e-file study): $11.6 million was spent in fiscal year 2023 on a direct e-file tax return study [1][2].
Regarding employee compensation and contractor support, the detailed breakdown is not explicitly given in the summaries. However, a significant portion in Operations Support likely includes employee compensation, facilities, and contractor support necessary to execute core IRS functions. The Business Systems Modernization funding mostly supports contractor-driven technology projects for IRS system updates. Enforcement and taxpayer services funding also comprise personnel-related costs, such as hiring and retaining IRS agents and customer service representatives.
The funding clawbacks have posed challenges for the IRS, with reductions hitting enforcement funding hardest. This has led to canceled contracts, workforce reductions, and slowdowns in modernization and compliance efforts. Despite these funding cuts, the IRS continues paying many former employees while preparing for upcoming requirements [2][3].
Here's a summary of the spending as of Q1 2025:
| Category | Amount Spent (as of Q1 2025) | Allocated Total | Likely Includes | |-----------------------------|------------------------------|--------------------|-----------------------------------------| | Operations Support | $6.0 billion | $25.3 billion | Employee compensation, contractors, admin support | | Business Systems Modernization | $2.7 billion | $4.8 billion | Contractor support, tech modernization | | Enforcement | $2.7 billion | $3.8 billion | IRS enforcement personnel and related | | Taxpayer Services | $2.2 billion | $3.2 billion | Personnel for taxpayer help centers | | Energy Security | $63.6 million | $500 million | Energy-related initiatives | | Other (Direct e-file study) | $11.6 million (FY23) | N/A | Research study |
Overall, the largest share of IRA funds appears dedicated to supporting IRS personnel and operational capacity (employee compensation) through Operations Support, followed by contractors primarily in Business Systems Modernization (technology initiatives), and significant spending in enforcement and taxpayer services.
[1] IRS.gov, "IRS Fiscal Year 2025 Budget in Brief," accessed on April 21, 2025. [2] IRS.gov, "FY 2025 IRS Funding: The Facts," accessed on April 21, 2025. [3] TIGTA.gov, "IRS FY 2025 Appropriations: Agencies Face Challenges with Reduced Funding," accessed on April 21, 2025.
- The Treasury Inspector General for Tax Administration (TIGTA) may be examining the impact of cutbacks at the Internal Revenue Service (IRS), including potentially reduced employee numbers and enforcement efforts, due to the IRS budget cuts, as a result of financing challenges.
- Businesses may experience fluctuating tax compliance requirements and potential delays due to the financial constraints and personnel reductions within the Internal Revenue Service (IRS), stemming from the Inflation Reduction Act (IRA) budget cuts.
