The number of feds in tax debt spiked during the pandemic

The rate of federal employees who fail to pay their taxes on time has grown in recent years, according to a new audit, though the Internal Revenue Service is hopeful it can soon shrink the figure. 

The federal workforce still overwhelmingly pays its taxes on time, the Treasury Inspector General for Tax Administration found in a new report, though the delinquency rate has grown from 4.9% in 2021 to 6.9% in 2024. There were 215,000 federal workers who had outstanding tax bills as of 2024, a 45% jump from 2021. They collectively owed $2.1 billion, up from $1.5 billion three years prior. 

IRS officials attributed much of the increase to a pause of various collection efforts during the COVID-19 pandemic. 

“The IRS began a phased-in resumption of the levy program in August 2024 and anticipates that the delinquency rates will decrease in the coming years,” the inspector general said. 

Still, the auditors implored IRS to do a better job ensuring federal employees pay their taxes on time. IRS is prohibited from sharing its list of non-compliant feds with other agencies, a ban the IG suggested the Treasury Department lobby Congress to change.

“If taxpayers (i.e., non-federal employees) are aware that federal employees are not timely satisfying their tax obligations, it may impact their willingness to comply with their own tax matters,” the IG said. 

The watchdog noted that Treasury has an obligation to hold employees accountable for tax noncompliance and its rate for such workers is just 2.4%. 

IRS and Treasury last year collaborated to mail 427,000 notices to federal employees and retirees delinquent on their taxes, which led to nearly 65,000 of those individuals making at least some payment on their tax bills. Agency officials said that was a one-time initiative and it would not be sending additional notices. 

The tax agency in 1993 launched a program to specifically track and identify federal workers who fall behind on their tax bills. The number of employees working on that program dropped in half last year as part of IRS’ overall effort to shrink its workforce. Still, the agency said it has introduced additional enforcement of delinquent federal workers and is now prioritizing that population in its collection activity two days per week instead of one day per quarter. 

As of 2024, there were 572,000 combined federal employees retirees who were not up to date on their taxes. That figure jumped by 43% since 2021 despite the overall population slightly declining. They owe $6.3 billion in taxes, a 32% increase. 

About 50,000 current employees failed to file a tax return for multiple years. More than 1,000 employees are delinquent on their taxes for at least six years. The IG said it referred the 122 federal workers who were at least eight years behind to IRS’ Criminal Investigations division. 

Federal employee advocates have noted over the years that the civil servants maintain a delinquency rate far lower than that of the U.S. population.