The 2026 tax filing season has opened with a historic legal thunderclap. In late January, President Donald Trump filed a $10 billion lawsuit against the Internal Revenue Service (IRS) and the Department of Justice, alleging “reputational and financial harm” resulting from the unauthorized leak of his private tax records.
While the headlines are dominated by the political drama of a sitting president suing his own executive agencies, the real story for millions of Americans is practical: How will this impact your tax refund?
With the IRS already facing a reported 27% workforce reduction and the challenge of implementing the new “One Big Beautiful Bill Act” (OBBBA), this lawsuit adds a layer of complexity to what experts are calling one of the most chaotic filing seasons in recent memory. If you are counting on your refund to pay bills or rebuild savings, you need to understand the landscape immediately.
The Lawsuit: A $10 Billion Distraction?
Filed in federal court in Florida on January 29, 2026, the lawsuit names the IRS and the Treasury Department as defendants. The plaintiffs—President Trump, his sons Donald Jr. and Eric, and the Trump Organization—seek $10 billion in damages.
The core of the complaint centers on the actions of Charles Littlejohn, a former IRS contractor who is currently serving a five-year prison sentence. Littlejohn pleaded guilty to stealing and leaking the tax returns of President Trump and other wealthy individuals to news outlets like The New York Times and ProPublica between 2018 and 2020. The lawsuit alleges that the IRS failed to safeguard this confidential data, leading to severe privacy violations.
Why this matters to you: A lawsuit of this magnitude demands significant attention from agency leadership and legal teams. For an agency like the IRS, which operates on tight seasonal timelines, any diversion of resources at the executive level can trickle down to operational delays. When the leadership is focused on a $10 billion legal defense, the focus on processing average taxpayer returns can inevitably waver.
IRS Resource Strain: Expect Delays
Even without the lawsuit, the IRS was entering the 2026 filing season under severe strain. The National Taxpayer Advocate, Erin M. Collins, recently warned Congress that the agency is “confronting a reduction of 27% of its workforce” alongside leadership turnover. These staffing cuts have hit key departments responsible for processing returns and answering taxpayer phone calls.
The “Chaos” Forecast:
- Longer Processing Times: While the IRS typically aims to issue 90% of refunds within 21 days, returns requiring manual review could face significant delays this year due to fewer staff.
- Customer Service Gaps: With thousands of customer service positions cut, reaching a human agent to resolve a filing error will be more difficult than ever.
- Backlog Risks: A reported backlog of inventory from the previous year means the agency is starting the season already behind schedule.
“Inventory that is not worked during the current processing year will be carried into the 2026 Filing Season and may affect the IRS’s ability to timely process tax returns.” — Treasury Inspector General for Tax Administration Report (2026)
New for 2026: The “One Big Beautiful Bill” Changes
Compounding the operational challenges is the implementation of the new tax legislation signed by President Trump, known as the “One Big Beautiful Bill Act” (OBBBA). While this legislation promises larger refunds for many, it also requires the IRS to update its systems and forms in real-time, which can lead to technical glitches.
If you want to maximize your refund, you must be aware of these specific new provisions for the 2025 tax year (filed in 2026):
1. No Tax on Tips and Overtime
One of the headline features of the new law is the exemption of tips and overtime pay from federal income tax, up to certain income thresholds. To claim this, you must ensure your W-2 accurately breaks down your “regular” wages versus “overtime” or “allocated tips.”
2. Auto Loan Interest Deduction
For the first time in decades, everyday taxpayers can deduct interest paid on auto loans. This is a massive change for millions of households with car payments. Action item: Contact your lender immediately to get your interest statement (similar to a mortgage 1098 form) so you can claim this deduction.
3. Expanded Standard Deduction
The standard deduction has increased significantly for the 2025 tax year. This increase is designed to simplify filing for millions of Americans, making it less necessary to itemize unless you have substantial deductible expenses.
2025 Standard Deductions (Filed in 2026):
| Filing Status | 2025 Deduction Amount |
|---|---|
| Single / Married Filing Separately | $15,750 |
| Married Filing Jointly | $31,500 |
| Head of Household | $23,625 |
Note: Taxpayers aged 65+ or those who are blind may be eligible for an additional standard deduction amount.
2025 Tax Brackets (Filed in 2026)
Understanding your bracket is key to estimating your potential tax bill or refund. Despite the new legislation, the progressive bracket structure remains in place. Here are the rates for taxable income earned in 2025:
| Tax Rate | Single Filers (Taxable Income) | Married Filing Jointly (Taxable Income) |
|---|---|---|
| 10% | $0 to $11,925 | $0 to $23,850 |
| 12% | $11,926 to $48,475 | $23,851 to $96,950 |
| 22% | $48,476 to $103,350 | $96,951 to $206,700 |
| 24% | $103,351 to $197,300 | $206,701 to $394,600 |
| 32% | $197,301 to $250,525 | $394,601 to $501,050 |
| 35% | $250,526 to $626,350 | $501,051 to $751,600 |
| 37% | Over $626,350 | Over $751,600 |
Your Survival Strategy for the 2026 Season
With the dual pressures of the Trump lawsuit and the staffing cuts, you cannot afford to be passive. Errors on your return this year could result in months-long delays, as there are fewer humans available to fix mistakes. Follow this checklist to protect your refund:
1. File Electronically and Choose Direct Deposit
This is non-negotiable this year. Paper returns are processed manually, and with a workforce reduction, paper returns could sit in a warehouse for months. E-filing with direct deposit is the only way to bypass the manual backlog.
2. Double-Check “New” Income Sources
If you are claiming the new exemptions for tips or overtime, verify your numbers against your final pay stubs of 2025. If the numbers on your return don’t match the W-2 copies sent to the IRS by your employer, your return will be flagged for manual review—putting you in the dreaded “delay zone.”
3. Create an IRS.gov Account
If you haven’t already, set up an account on IRS.gov. This portal allows you to track your refund status, view notices, and verify the payments you made. In a year where phone support will be nearly non-existent, this online access is your best lifeline.
4. Don’t Wait for April 15
The earlier you file, the better. Submitting your return before the peak rush in late March and April increases the likelihood of a smooth process. Early filers often get their refunds before the system becomes overwhelmed.
What Can Go Wrong?
Given the “perfect storm” of legal battles and budget cuts, here are the specific pitfalls to watch for:
- Amended Return Nightmares: Avoid filing an amended return (Form 1040-X) if possible. These are processed manually and could take over 20 weeks to resolve this year. Get it right the first time.
- Identity Verification Delays: The IRS is using stricter automated fraud filters. If you receive a letter asking you to verify your identity (Letter 5071C), respond immediately online. Ignoring it will freeze your refund indefinitely.
- Incorrect Auto Loan Interest Claims: Because this is a brand-new deduction, the IRS systems will be sensitive to errors here. Ensure you have the exact dollar amount from your lender, not an estimate.
The Bottom Line
The $10 billion lawsuit is more than just a headline; it is a symptom of a tax system under extraordinary pressure. While the political battles play out in court, your priority must be accuracy and speed. By filing electronically, organizing your documents for the new OBBBA deductions, and avoiding manual processing triggers, you can navigate this chaotic season and secure the refund you deserve.
This article provides general financial education and information only. Everyone’s financial situation is unique—what works for others may not work for you. For personalized advice, consider consulting a qualified financial professional such as a CFP or CPA.
Last updated: February 2026. Financial regulations and rates change frequently—verify current details with official sources.
