A sign is seen outside the Internal Revenue Service building on May 4, 2021 in Washington. The amount of unpaid taxes owed to the IRS is expected to continue to rise, according to projections released by the Federal Revenue Service.
Patrick Semanski/AP
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Patrick Semanski/AP
A sign is seen outside the Internal Revenue Service building on May 4, 2021 in Washington. The amount of unpaid taxes owed to the IRS is expected to continue to rise, according to projections released by the Federal Revenue Service.
Patrick Semanski/AP
NEW YORK — The amount of unpaid taxes owed to the IRS will continue to rise, according to projections released Thursday by the Federal Revenue Service.
For the 2021 and 2020 tax years, the latest to receive such estimates from the IRS, the total projected “tax gap” jumped to $688 billion and $601 billion, respectively. This represents a significant increase over previous years, with the total tax gap projected to be $550 billion from 2017 to 2019 and $496 billion from 2014 to 2016.
One of the IRS’ biggest challenges is making sure people actually pay their taxes. Although the vast majority of Americans voluntarily pay their taxes on time, hundreds of billions of dollars in unpaid taxes accumulate each year, and the estimated tax gap continues to widen, according to government data. .
IRS Commissioner Danny Wuerffel said the growing tax gap estimates “underscore the importance” of further compliance efforts. Some of the $80 billion the IRS received from the Biden administration’s Inflation Control Act is being used for that purpose.
“We are adding focus and resources to areas where compliance is a concern, including high-income and high-net-worth individuals, partnerships and corporations,” Werfel said in a statement. “These actions are urgent on many fronts, including increasing the fairness of our tax system, protecting taxpayers, and working to combat tax disparities.”
Tax disparities may also be larger than expected. Some of the previous year’s forecasts have already been revised upward. For example, the total tax difference from 2017 to 2019 was initially expected to be $540 billion, but subsequent estimates have increased it by $10 billion.
The 2021 estimates assume that nonconformities have not changed since the most recent audits from 2014 to 2016, IRS officials noted on a call with reporters. This means current projections do not reflect the filing behavior seen during the pandemic, for example. However, changes in economic activity and changes in the composition and type of income reported in 2021 are taken into account, and as total tax payments increase, so does the tax gap.
Agency officials added that Inflation Control Act funding is also being used to establish more sophisticated methods aimed at measuring more recent behavioral changes.
Thursday’s announcement also means that tax gap projections for a single tax year have been provided for the first time.
The estimated total tax difference (consisting of missed payments due to non-filing, under-reporting, and underpayments) does not take into account late payments or IRS enforcement. In 2021, the IRS expects to collect $63 billion in late payment and enforcement proceeds, resulting in an estimated net tax difference of $625 billion.
