![]() It also has a long history of bipartisan support, including from every president since Ronald Reagan. Shrinking the tax gap is one of the most efficient ways of raising revenue, and it does so without raising anyone’s taxes. Given the substantial increase in IRS funding enacted through the Inflation Reduction Act, the agency will hopefully be able to make progress on bringing these figures down and increasing overall tax compliance. They estimate the annual net tax gap grew from an average of $380 billion in 2011-2013 to $428 billion in 2014-2016, and to $470 billion in 2017-2019. The IRS estimates the average annual gross tax gap grew from $438 billion over the 2011-2013 period to $496 billion over the 2014-2016 period, then to $540 billion over the 2017-2019 period. There may be differences if the marginal tax rates are different in these two situations.Īfter updating tax gap estimates from the 2011-2013 period and producing preliminary estimates for the 2017-2019 period (inclusive of changes from the Tax Cuts & Jobs Act), the IRS report shows the tax gap is growing over time – but shrinking as a share of taxes owed. Is the difference between (1) the estimate of the individual income tax underreporting tax gap where underreported tax is calculated based on all misreporting combined and (2) the estimate of the individual income tax underreporting tax gap based on the sum of the tax gaps associated with each line item where the line item tax gap is calculated based on the misreporting of that item only. Includes the Alternative Minimum Tax and taxes reported in the “Other Taxes” section of the Form 1040 except for self-employment tax and unreported social security and Medicare tax (which are included in the employment tax gap estimates). Includes adjustments, deductions, and exemptions. At least half of the gross tax gap comes from underreporting of small business income, including $130 billion from underreported pass-through business income and $53 billion from underreported self-employment taxes. 72 percent ($357 billion) of the gross tax gap comes from the individual income tax, compared to 19 percent ($93 billion) from employment taxes and the rest from corporate and estate taxes. Of the $496 billion gross tax gap, the IRS estimates 80 percent ($398 billion) comes from underreporting of income, with the rest coming from a combination of non-filing and underpayment. This represents an improvement in tax compliance relative to earlier years, and recently enacted IRS funding measures should improve compliance even more going forward. ![]() ![]() The analysis found that the gross tax gap averaged $496 billion per year and the net tax gap after enforcement and late payments averaged $428 billion per year, meaning 15 percent of taxes were not paid when owed and 13 percent were never paid at all. The Internal Revenue Service (IRS) recently released an updated analysis of the “ tax gap” – the difference between taxes owed to the federal government each year and the amount actually collected – covering tax years 2014 through 2016. ![]()
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