Tax Season 2026 What Just Happened, and What Comes Next Published May 28, 2026
We’re about a month removed from April 15th. Tax professionals are finally coming up for air, extension season is settling in, and if you work anywhere near lending, compliance, or the broader IRS ecosystem, now is the right moment to ask a simple question. What exactly just happened?
This Was Not a Normal Filing Season
The IRS entered 2026 after losing roughly a quarter of its workforce through buyouts, deferred resignations, and DOGE-related staffing reductions, shrinking from roughly 103,000 employees to approximately 77,000 in a relatively short period of time. At the same time, the agency was trying to absorb major tax law changes under the One Big Beautiful Bill Act (OBBBA), expand automation initiatives, and maintain the expectation that filing season would still feel normal to taxpayers.
And for many taxpayers, it largely did.
The IRS reported that the vast majority of refunds were issued within 21 days, with average refunds running approximately 11.3% higher year-over-year. Electronic filing volumes held up. Online tools handled a growing percentage of routine interactions. On the surface, the system mostly worked. IRS leadership—including Commissioner Frank Bisignano in Senate Finance Committee testimony in April—repeatedly pointed to refund timelines and digital servicing metrics as evidence of a successful filing season.
But underneath that, this filing season revealed something lenders and financial institutions should pay attention to.
From our vantage point working closely with lenders and IRS data workflows, one of the more noticeable shifts this year was how much smoother the routine cases felt compared to the growing friction surrounding exceptions and non-routine resolution timelines.
The IRS increasingly appears optimized for straightforward cases, while the exceptions are becoming slower, less predictable, and harder to navigate.
That distinction matters.
The Routine Cases Still Work
The routine path still works relatively well. Simple filings, standard refunds, basic account interactions, automated notices. The machinery can process volume. But the strain increasingly shows up in the edge cases that require human intervention: payroll tax issues, amended returns, identity mismatches, correspondence resolution, collection matters, and complex taxpayer situations that do not fit neatly into automated workflows.
IRS.gov traffic reportedly surged roughly 58% year-over-year this filing season while phone wait times climbed significantly as well. That combination does not necessarily signal a system running smoothly. In many ways, it reflects taxpayers increasingly pushed toward digital channels because there are fewer people available on the other side.
At the same time, the IRS accelerated its use of AI and automation across both taxpayer servicing and enforcement functions. Voice bots reportedly handled millions of calls, while chatbots resolved hundreds of thousands of interactions. A significant share of users never spoke to a human representative at all. Automated systems now play a much larger role in everything, from routing inquiries to identifying compliance anomalies. The agency entered 2026 with roughly 129 active AI-related initiatives, up from around 54 two years ago.
The more important implication for lenders is not the chatbot itself. It is the broader shift toward continuous monitoring and automated exception detection.
The IRS Is Becoming a Continuous Monitoring Environment
Historically, tax returns were often treated as relatively static snapshots of borrower health. Increasingly, that assumption breaks down.
The IRS now operates in a far more dynamic data environment, with systems regularly cross-referencing reported income, payroll filings, payment processor activity, bank reporting, and third-party information sources. Some IRS audit selection models now reportedly run as many as six times per year instead of relying primarily on annual review cycles. Compliance visibility is becoming more continuous rather than periodic.
That changes the nature of borrower risk.
A borrower who appeared clean at origination may not remain clean six months later. Payroll tax issues, filing gaps, underreported income, or unresolved balances can surface well after a loan closes, particularly in an environment where IRS systems are identifying discrepancies faster than human resolution channels can process them.
That is one of the more important shifts lenders should be paying attention to right now. The risk environment is becoming more dynamic between origination and servicing, particularly for borrowers operating close to the margins.
The OBBBA Changed More Than Tax Calculations
At the same time, the OBBBA introduced some of the most meaningful individual tax changes in years. New deductions tied to tips and overtime, along with a materially expanded SALT cap, immediately altered the shape of many taxpayerreturns. Employers, payroll providers, tax software companies, and practitioners were all adapting in real time as filing season approached.
Average refunds were reportedly up around 11% this filing season, which generated positive headlines, but the more important shift for lenders may be structural rather than short term.
Income calculations may shift. Itemization behavior may shift. Effective taxable income may shift. In some cases, borrower cash flow may genuinely improve. In others, returns may simply become harder to interpret consistently across underwriting models built around prior-year assumptions.
What Comes Next
Now that filing season is behind us, the next several months will tell us much more about what this new IRS operating environment looks like in practice.
The real stress tests tend to come after April. Summer and fall are when amended returns begin stacking up, correspondence inventories build, collection activity accelerates, payroll tax issues surface more visibly, and lenders start encountering borrowers whose IRS situations no longer fit neatly into automated workflows.
It is also the period where we will get a clearer picture of how sustainable the IRS’s staffing reductions and AI-driven operating model actually are outside the controlled environment of filing season.
For lenders, there are a few things worth watching closely over the remainder of 2026.
First, whether slower IRS processing and staffing constraints begin creating more friction inside the lending process itself. Delayed return processing, unresolved taxpayer correspondence, amended returns sitting in backlog status, or slower resolution of outstanding tax debts can all impact underwriting timelines and borrower readiness, particularly in government-guaranteed and documentation-heavy lending environments.
Second, whether expanded automation and AI-assisted enforcement increases the frequency of discrepancies surfacing after origination. Payroll tax issues, filing gaps, underreported income, or emerging balances may become more visible to the IRS faster than borrowers are able to resolve or explain them, creating a more dynamic risk environment between origination and servicing.
And third, how lenders adapt to the borrower variability introduced by the OBBBA, especially as underwriting models recalibrate around changing taxable income calculations, deductions, and borrower cash flow assumptions.
The more important question now is what happens when a smaller, more automated IRS moves from processing returns to managing exceptions.
