29-07-2025
IRS warns federal workers about tax debts. Will it cost them their jobs?
The IRS has sent letters to federal workers alleging that they are among 525,000 current and former government staffers who owe back taxes, prompting tax experts to warn that the unpaid bills could be used as a pretext to fire them from their jobs.
The letters, mailed last month, begin with the words 'Urgent: You have an outstanding tax issue,' in bold, large type.
They started arriving in people's mailboxes shortly after the Office of Personnel Management proposed a rule that would make it easier to dismiss employees who don't meet certain 'suitability criteria,' including 'failure to comply with generally applicable legal obligations, including timely filing of tax returns.'
While privacy laws generally prevent the IRS from sharing information about individuals' tax returns with other government agencies, several tax practitioners and employment lawyers who reviewed the letter said agency heads can use unpaid taxes as a basis for firing the workers if the proposed firing guidelines are put into effect.
'I immediately thought: They're trying to find some grounds to use this suitability process,' said Debra D'Agostino, an employment attorney focused on federal employees. 'That's what absolutely immediately jumped in my head.'
The letter from the IRS did not specify any consequences that the workers and retirees might face. It acknowledged the recipients' service to the government and reminded them of their responsibility to 'lead by example' by paying their taxes.
Jessica Marine, who left her federal job in April and now works as a tax attorney at a Maryland law firm with many federal employees as clients, became concerned when more than 20 of them received the notice. While the clients do owe taxes or have not submitted returns, some are already on payment plans arranged with the IRS, she said.
'This is not to be taken lightly,' she said. She added that if the suitability rule takes effect, 'this is a way the Trump administration could get rid of many federal employees … and it would be 100 percent legal.'
The IRS and the Office of Personnel Management did not respond to questions from The Washington Post.
Collections letters from the IRS typically include the amount owed or a tax year for which no return was filed. The notices usually include a deadline to pay before penalties increase.
But last month's letters, labeled LT36, have none of that personalized information, just a broad warning that the recipient is in some way behind on their taxes.
'The administration came into office saying it wanted to gut the workforce. There were people associated with this administration that said, 'We want it to be psychologically damaging when we do it.' And that's sort of what's happening,' said Suzanne Summerlin, a federal appointee under President Joe Biden who is now a labor attorney focused on the federal workforce. The IRS letters seem to be 'another attack that this administration is making on its own workforce,' she said.
The federal government until now has lacked the authority to fire employees over unpaid taxes, although Republican lawmakers years ago unsuccessfully floated legislation that would have allowed it. Receiving a warning from the IRS might make employees apprehensive about staying in government and being 'subjected to this level of scrutiny,' Summerlin said.
All Americans are obligated by law to file returns and pay their taxes, but a program called FERDI — the Federal Employee/Retiree Delinquency Initiative — that dates back to 1993 allows the IRS to take extra measures to collect back taxes from federal workers.
The Treasury Inspector General for Tax Administration noted in a 2023 report that cases of federal workers behind on their taxes have risen, from just under 4 percent of federal workers in 2015 to just under 5 percent in 2021, the most recent year for which estimates were available. (The rate for all taxpayers tends to fall between 8 and 9 percent, so federal workers are doing better.)
According to the 2023 report, the largest number of federal workers who failed to submit their tax returns for two or more years worked for the U.S. Postal Service, followed by the Department of Veterans Affairs and the military. More than 3 in 4 non-filers had annual income below $100,000.
The IRS generally explains numbered notices like this one on its website, but the agency has not posted online information about LT36.
The IRS did send the letters, but after California accountant Logan Allec posted about the letter on YouTube, some people told him they had thought the letter was a scam mimicking a real IRS letter, since it didn't come up on the IRS website, he said. The comments on his video filled up with several people who claimed they got the letter, checked their balance and found they did not actually owe any taxes.
'Notices usually have information about the taxpayer's account: the balance due, the penalties, the interest, a particular due date,' Allec said. He found some of the notices that his clients received frustrating. In one case, the IRS had claimed months ago that Allec's client owed a 10 percent early-withdrawal penalty on all of the money that he took out of a retirement account. Allec thinks the client only owes a penalty on some of the money and has exchanged multiple letters with the IRS trying to resolve the issue.
That client received the LT36 letter and is 'kind of freaking out,' Allec said, even though he is in the midst of a good-faith effort to pay what he rightly owes.
About two dozen clients of Los Angeles tax adviser Mike Habib's firm received the letter, he said.
Habib said taxpayers who get the notice should call the IRS, figure out what they owe, and pay it quickly or set up a payment plan. 'I would expect within five to six months, if you ignore it, then the IRS will move on to possibly levies and things like that,' he said. 'If you work for the government, they expect you to be compliant with the federal tax laws.'
