IRS Commissioner John Koskinen on Wednesday told employees that the $346 million cut to the agency budget is bound to reduce tax collections from potential tax cheats by at least $2 billion and hurt taxpayer services.

“Our hiring — already limited at a ratio of one hire for every five people who leave — will be frozen with only a few mission-critical exceptions,” he wrote in an email to employees. “We will stop overtime except in critical situations.”

But there’s potentially more to come, as IRS leadership decides what else to cut over the next nine months of the fiscal 2015 budget, he warned. Koskinen also said IRS leadership is “consulting with the leadership of the NTEU” — referring to the National Treasury Employees Union, meaning the cuts in some way could affect employees.

“There’s no doubt we will have to take some difficult steps,” he said.

Union president Colleen M. Kelley said in a statement that NTEU “will be doing everything we can to prevent these draconian cuts from resulting in hardship to frontline employees who provide vital services to taxpayers.”

Republicans have made it a priority to gut the IRS’s budget following the tea party targeting scandal — and they intend to continue doing so next year. The approved $10.9 billion budget is $1.5 billion below what the IRS requested and $900 million below 2010 levels.

The cuts come as the IRS portfolio expands to include implementing the Affordable Care Act and another new international reporting law that’s expected to confuse taxpayers.

Koskinen, who was brought in after the tea party ruckus to turn the agency around, has warned the cuts are crushing the IRS and that taxpayer services are suffering.

He said in the email that their budget is now akin to what it was in 1998, when Congress had to reorganize the agency because it was in such disarray.

According to his letter, employee travel will also be scaled back further, including his trips to visit and meet with IRS employees around the country — something he’d done since taking charge of the agency.

He also specifically mentioned pay raises in the email as an “additional” cost on the IRS, though he did not say anything about future cuts to pay.

“In addition, we must absorb additional costs of $250 million this year to cover the government-wide pay raise of one percent and additional benefit costs,” he wrote.

The IRS is expected to announce more effects of the cuts in the coming days and weeks.