President Donald Trump has proposed replacing the Internal Revenue Service (IRS) with a new agency called the “External Revenue Service” (ERS).
The idea behind the ERS is to fund the US government using money collected from foreign sources (mainly tariffs and customs duties) instead of taxing American citizens.
While this sparked excitement in the media, it also led to a dangerous misunderstanding among taxpayers: their tax problems might just disappear. But the IRS is here and still collecting.
In March, Trump’s administration clarified that the plan would only eliminate income taxes for people earning under $150,000 a year. That means anyone earning more still needs to pay, and the IRS has to collect it and verify incomes to ensure taxpayers stay under the threshold.
And that is not the only reason the IRS would still be necessary. This proposal only targets the progressive income tax. There has been no mention of eliminating the payroll tax, which means the IRS would still be needed to handle that too. Plus, economists warn that tariffs currently represent a small share of federal revenue and are unlikely to sustainably replace income taxes.
Why the IRS Is not Going Anywhere, Even Under Trump’s IRS Plan
Most people think of income tax as the only type, but the IRS collects multiple types.
1. Progressive Individual Income Tax
- The more you earn, the higher your tax rate.
- This is the federal income tax you report every year.
- Trump’s plan only proposes eliminating this for those earning under $150,000.
2. Payroll Tax
- Automatically deducted from every paycheck.
- Funds Social Security (12.4%) and Medicare (2.9%) — a total of 15.3%.
- Half is paid by the employee, half by the employer, though in reality, employees often bear the full burden through lower wages.
- Due to its role in funding Social Security and Medicare, this tax is rarely, if ever, debated for removal.
3. Self-Employment Tax
- For freelancers and independent contractors.
- Similar to payroll tax, but you pay both the employer and employee portions, totaling 15.3%.
4. Capital Gains Tax
- Tax on profits from selling investments like stocks, crypto, or real estate.
In reality, you will still be paying taxes, they will just come from different directions.
Do I still have to pay the IRS?
Despite the political headlines, the system has not changed, and the IRS will still be collecting in 2025. Many assume bold proposals freeze IRS action. But that is not how it works.
The IRS is fully operational in 2025, still sending notices, adding penalties, and collecting debt. If you owe back taxes, ignoring them will only make things worse. Wage garnishment, bank levies, and property liens are still on the table.
When you do not respond to IRS letters and notices, the penalties and interest will pile up. Waiting can cost you more than money. Worse, it can limit your relief options, block access to certain programs, and leave you vulnerable to aggressive collection.
What Taxpayers Should Do Now If They Owe Back Taxes
If you have tax debt and cannot pay in full, there are programs. One of them helps you reduce or manage what you owe:
- Offer in Compromise lets you settle your debt for less than the full amount if you qualify.
- Installment Agreements break your balance into monthly payments you can afford.
- Currently Not Collectible status pauses collections if you truly can’t pay right now.
Each option has its own rules, forms, and income requirements. If you are unsure what fits your case, a tax professional can help to figure out your best options.
Even if the IRS changes tomorrow, your existing debt does not just go away. These proposals would only apply to future taxes, not the ones you already owe. The IRS still has the authority to collect.
Do not wait until penalties stack up. Talk to our tax attorney today, your first consultation is free.
