The IRS is in the news again – and not for cutting refund checks early.
The agency’s decades-long effort to modernize its systems is years behind schedule and billions over budget, setting off a flurry of reform proposals that could dramatically remake the tax experience for ordinary Americans.
A 30-Year Tech Project That Still Isn’t Done
The IRS began its “modernization” effort in 1990, with a goal of replacing key systems by 1996. Now, in 2025, the job is still not done. Contractors now estimate it’s at least five more years out. That’s nearly three decades late and $15 billion over budget.
What went wrong? A major culprit, according to the Department of Government Efficiency, or DOGE, is how federal IT contracts are structured.
“These contracts reward time, not outcomes,” said one DOGE official. “That means contractors get paid for how long something takes – not whether it actually gets done.”
That is to say, the longer it drags on, the more someone gets paid.
IRS Freezes $1.5 Billion in Contracts
To that, the IRS this week froze $1.5 billion worth of contracts that have no direct impact on tax filings. The objective? Slash inefficiencies and either cancel underperforming contracts or rework them to prioritize pay-for-performance models.
These changes come amid growing public frustration with delayed refunds, inconsistent digital services, and outdated tech that harks to the early 2000s.
Could Your Taxes Be Going Away?
At the same time, a more dramatic proposal is gaining momentum: eliminating the income tax for people earning less than $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,” said Lutnick during a press briefing. “That includes making income tax optional for most working Americans.”
Critics caution that such a shift would create revenue gaps, but proponents propose that better oversight, streamlining of programs, and tax code simplification could account for the difference.
What This Means for You
- No immediate changes to tax filing in 2025. You still need to file.
- The IRS will most likely shift contract structures in an effort to enhance service over the coming years.
- If you earn below $150,000, you can potentially expect major changes in the tax liability in the next few years, as reform gains support.
- Expect more audits and scrutiny of contractors, not of 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
The IRS processes millions of returns annually and serves other functions: issuing stimulus checks, overseeing tax credits, and verifying applicants’ eligibility for federal assistance.
If the agency continues to lag in its tech overhaul, those services could face disruptions-something no one wants during an economic crunch.
If tax reform does pass, it could alter how people in this country think about federal income tax. 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.
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