Department of Treasury FY 2026 Budget and Reconciliation Bill Highlights

The Department of Treasury requests $12.4B in FY 2026 discretionary funding, a budget figure which includes Treasury Executive Office of Asset Forfeiture (TEOAF) Permanent Rescissions and Debt Restructuring Recissions. The total represents a 29% decrease from the department’s $16.0B enacted FY 2025 level.

The decrease is primarily driven by reduced funding at the IRS, though many of Treasury’s bureaus and division are also facing cuts in FY 2026. A breakdown of Treasury’s FY 2026 budget is below:   

Source: FY 2026 Treasury Budget

Those organizations included in the “Other” category include the Alcohol and Tobacco Tax and Trade Bureau (TTB), Office of the Inspector General, Treasury Inspector General for Tax Administration (TIGTA), and Department-wide Systems and Capital Investments program.

Key Elements of the FY 2026 Treasury Budget

• Requests $9.8B at the IRS, a $2.5B decrease from FY 2025, driven by implementing efficient processes and limiting contract spending to mission critical needs.
  • Includes $3.6B in Taxpayer Services (+31% over FY 2025), $3.6B in Enforcement (-34% from FY 2025), and $2.6B in Technology and Operations Support (-37% from FY 2025).
  • Rescinds $16.5B in unobligated balances from the Inflation Reduction Act.
• Requests $292M for Departmental Offices, including a $28M increase in U.S. National and Economic Security and International Finance and Investment priorities, and $5M for Trade and Tariff Policy Development.
• Provides the Treasury Inspector General for Tax Administration (TIGTA) $138M, a reduction of $7M from FY 2025. Budget documents emphasize that reductions will inhibit TIGTA’s ability to modernize its IT infrastructure and postpones the organization’s data analytics upgrade.

Key IT Elements of the FY 2026 Treasury Budget

• Requests $59M for the Cybersecurity Enhancement Account (CEA), including $8M for security logging, $8M for other cyber priorities, $6M for zero trust architecture implementation, and an additional $229K for cloud enterprise investments.
• Provides an additional $316M for the Treasury Franchise Fund to centralize IT commodity applications and services such as Salesforce and ServiceNow licenses, cloud adoption and credential services.
• Prioritizes the Bureau of Fiscal Service capabilities to phase out paper check disbursements to electronic options and supports the establishment of a fraud prevention and financial integration function on a single platform with an additional $49M.
• Requests $7M to continue replacing legacy systems at Alcohol and Tobacco Tax and Trade Bureau (TTB) with an online experience for all transactions on the new myTTB platform.
• Provides an additional $11M to the Office of Terrorism and Financial Intelligence, and includes funding to support data governance, infrastructure and capabilities for integration with other IC efforts and systems.

IRS Budget Outlook on Information Technology

Facing a budget decrease of 20% in FY 2026, the IRS is looking to streamline operations and better align the organization with new priorities. To do so, budget documents describe the IRS conducting thorough reviews of contracts, cloud migration, licensing fees and subscriptions, IT spending and travel. IT contract spending, according to budget documents, will limit contract spending to mission critical needs and instead emphasize optimizing resource allocation and reducing costs.

IT modernization efforts for the forthcoming fiscal year will focus on expanding automation, bolstering data integration, and improving system interoperability to improve taxpayer services and internal operations.

Treasury Funding Provisions in the One Big Beautiful Bill

Last week, H.R. 1, the One Big Beautiful Bill Act (OBBA) was enacted with for Treasury located in Title VII of the bill. The legislation contains several provisions for Treasury including changes and extensions to the tax code and provides the department with $410M to carry out those amendments.

However, the bill also provides $15M for Treasury to assemble a report to Congress on an alternative to the IRS’ Direct File program. Though the current Direct File Program seems to be on the chopping block, Congress is seeking avenues to provide a free tax filing alternative. According to the OBBA, Treasury must explore the cost and feasibility of solutions such as public-private partnerships, as well as assess taxpayer opinions and preferences on a government-run or private-sector free tax filing service.  Contractors should pay attention to the development of the report as it may result in an opportunity down the line depending on its findings.