Get The Tax Gap. The Difference Between The Tax That Taxpayers Should Pay And What They Actually Pay On

The tax gap is the difference between the total amount of taxes that are estimated to be owed and the amount actually collected on time.

Image. The tax gap occurs when taxpayers, whether intentionally or inadvertently, fail to accurately report tax liabilities on tax returns (underreporting), fail to pay taxes due from filed returns (underpayment), or fail to file a required tax return altogether or on time (nonfiling).

IRS: The tax gap The gross tax gap is the difference between true tax liability for a given tax year and the amount that is paid on time.

Underpayment occurs when taxpayers file their return but fail to remit the amount due by the payment due date. Of these three components, underreporting of income tax, employment taxes and other taxes represents about 80 percent of the tax gap.

The main source of the gross tax gap is individual income underreporting.

This is especially important as the economic recovery from the pandemic continues. In the United States, individual income taxes (federal, state, and local) were the primary source of tax revenue in 2021, at 42.1 percent of total tax revenue.

For tax years 2021 and 2020, the latest to receive such IRS estimates, the projected gross “tax gap” soared to $688 billion and $601 billion, respectively. That marks a significant jump compared to years past — with gross tax gap projections standing at $550 billion for 2017-2019 and $496 billion for 2014-2016.

Roughly 85% of taxes are paid on time, while about 15% are not. The tax gap includes both deliberately evaded taxes and those that taxpayers do not pay because of unintentional errors. taxation, improperly claiming tax benefits, or some combination of these activities.