If you’ve been on social media lately, you may have seen a claim that you soon won’t have to pay taxes because President Donald Trump is creating something called the External Revenue Service.
Trump announced his vision for the agency on his Truth Social network in mid-January.
“For far too long, we have relied on taxing our Great People using the Internal Revenue Service,” Trump wrote on Jan. 14. “I am today announcing that I will create the EXTERNAL REVENUE SERVICE to collect our Tariffs, Duties, and all Revenue that come from Foreign sources.”
Social media posts followed, predicting that paychecks will no longer be taxed, and several TikTokers claimed that the ERS will spell the end of income taxes in the US.
But alas, it’s probably not wise to believe this tax advice from social media. Let’s break down what we know so far about Trump’s proposed ERS — and why the IRS and income taxes aren’t going anywhere.
What is the External Revenue Service?
The External Revenue Service isn’t an actual agency at this point. It’s an idea Trump has floated multiple times in recent weeks.
In an executive order issued shortly after his inauguration, the president directed the secretaries of the Treasury, Commerce and Homeland Security departments to “investigate the feasibility” of establishing the agency.
Trump’s plans have confused many tax and policy experts. For starters, the US already has an agency tasked with collecting tariffs: US Customs and Border Patrol, which collects the tax at the 328 ports of entry in which goods enter the country. But US companies importing the products often cover the tariff through higher prices, and most economists will tell you the cost typically gets passed down to consumers.
“It’s important to recognize that this ERS agency is not laid out in any great detail,” said William Gale, co-director of the Urban Brookings Tax Policy Center. “I mean, the IRS administers and enforces the tax system, and that’s an enormous job.”
Read more: Tariffs Explained: What They Are and How They Will Impact Prices
Could Trump abolish the IRS?
Calling the new agency an “External Revenue Service” may have created further confusion because its name is similar to the “Internal Revenue Service.” But it’s unlikely the ERS would raise enough money to compensate for the shortfall even if it did replace the IRS.
In fiscal 2023, the IRS collected around $4.7 trillion in gross taxes and processed nearly 271.5 million tax returns. Individual income taxes account for roughly 48% of the federal government’s revenue, more than any other income source, followed by Social Security and Medicare taxes (36%) and corporate taxes (10%).
Adam Brewer, a Honolulu-based tax attorney, said that if the IRS were abolished, there would be an immediate need to replace it with something similar to collect domestic revenue.
“It may not be called the IRS, but some agency within the federal government would need to take on responsibilities like collecting Social Security and Medicare contributions,” Brewer said.
By contrast, tariffs account for less than 2% of federal revenue and haven’t accounted for more than 2% in over 70 years.
The federal government is limited as to how much it can raise through tariffs because imports account for a relatively small share of gross domestic product. In 2023, imports accounted for less than 14% of GDP in the US, according to World Bank data.
“Tariffs can raise some revenue, but it’s nowhere near as much as the income tax raises,” Gale said.
Read more: No, Trump’s IRS Hiring Freeze Won’t Slow Down Your Taxes, but the Way You File Might
Does Trump’s plan change your tax filing obligation?
Despite Trump’s pledge to create an ERS and his order to freeze hiring at the IRS, nothing in the law has changed. That means you’ll continue to have taxes withheld from your paycheck, and your tax return is still due April 15.
“Theoretically, the creation of an ERS and the additional revenue that unit will collect from any new tariffs could enable the federal government to reduce the amount of taxes paid by individuals,” Brewer said. “But that is a long way from abolishing the federal income tax and uncertain at best.”
The bottom line: You need to file your tax return this year. If you have questions about tax policy and how it affects you, consult with a CPA or tax attorney.
