Americans didn’t pay an estimated $688 billion in taxes due on their 2021 returns—the largest shortfall ever. Audits and other enforcement will be stepped up to reduce the gap, the Internal Revenue Service said Thursday.
The number includes $542 billion due to underreported income, with the remainder of the shortfall owed by those who didn’t file returns when they should have or never paid their bills. The total gap is up more than $138 billion from estimates for tax years 2017 to 2019.
Much of the increase is due to economic growth. The IRS said there has also been a shift from wage income, for which taxes are withheld, to gig economy jobs, for which there is a lower degree of compliance. Taxpayers’ overall compliance rate is projected to stay relatively steady at 86.3% for tax year 2021, after audits and other enforcement actions.
The largest element of noncompliance, $182 billion, was attributable to undeclared business and farm income reported on Schedule C and F on individual returns. “This increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas,” said IRS Commissioner Danny Werfel in a statement.
