The IRS is making headlines again – and not for cutting refund checks early.
The agency’s decades-long attempt to modernize its systems is not only years behind schedule but also billions over budget, sparking a wave of reform proposals that could dramatically reshape the tax experience for everyday Americans.
A 30-Year Tech Project That Still Isn’t Done
The IRS kicked off its “modernization” initiative in 1990, aiming to update critical systems by 1996. Fast forward to 2025, and the work is still incomplete. Contractors now say it’s at least another five years away. That’s nearly three decades late and $15 billion over budget.
What went wrong? A major culprit, according to the Department of Government Efficiency (DOGE), is how federal IT contracts are structured.
“These contracts reward time, not outcomes,” a DOGE official said. “That means contractors are paid for how long something takes – not whether it actually gets done.”
In other words: the longer it drags on, the more someone gets paid.
IRS Freezes $1.5 Billion in Contracts
In response, the IRS this week froze $1.5 billion worth of contracts that have no direct impact on tax filings. The goal? Slash inefficiencies and either cancel underperforming contracts or rework them to prioritize pay-for-performance models.
These changes come amid rising public frustration with delayed refunds, inconsistent digital services, and outdated tech that feels stuck in the early 2000s.
Could Your Taxes Be Going Away?
At the same time, a more dramatic proposal is gaining momentum: eliminating income tax for individuals earning under $150,000 annually.
Commerce Secretary Howard Lutnick says it’s possible – if the government can balance the budget through smarter operations.
“If we fix the waste, we can fund the future,” Lutnick said in a press briefing. “That includes making income tax optional for most working Americans.”
While critics warn that such a shift would create revenue gaps, proponents argue that better oversight, streamlined programs, and tax code simplification could make up the difference.
What This Means for You
- No immediate changes to tax filing in 2025. You still need to file.
- The IRS will likely shift contract structures to improve service in coming years.
- If you’re earning under $150,000, you could see major changes in your tax liability within the next few years if reform gains support.
- Expect more audits and scrutiny of contractors, not individuals.
Why It Matters
There is a pattern across all agencies where IT “modernization” contracts do not pay for outcomes/performance; instead, they pay for time. Therefore, the incentive is for contractors to “never finish,” resulting in incredible waste.
As an example, IRS modernization started in… pic.twitter.com/1OZn8DDTrL
— Department of Government Efficiency (@DOGE) March 21, 2025
Every year, millions of Americans rely on the IRS not just for processing returns, but also for distributing stimulus checks, managing tax credits, and verifying eligibility for federal aid.
If the agency continues to lag in its tech overhaul, those services could face disruptions – something no one wants during an economic crunch.
And if tax reform does pass, it could shift how Americans view federal income tax altogether.
We often think of the IRS as untouchable, slow-moving, and unchangeable. But between the freeze on tech contracts and the growing push for income tax reform, 2025 could be the year that finally disrupts the status quo.
