Mention the word "taxes," and you're liable to send even your closest friends and family members scurrying in the opposite direction. Preparing your taxes can be about as fun as watching grass grow or paint dry, but the tax planning process is something every working American deals with each year. On the bright side, most Americans also walk away getting a healthy refund check from Uncle Sam after preparing their taxes. A little pain for a big reward, you could say.
The statistics behind the roughly 150 million individual tax forms processed by the Internal Revenue Service each year are downright enormous, scary, and perhaps even crazy at times. Here are 12 of the craziest income tax statistics that'll help you appreciate the enormity and complexity that is the U.S. tax code.
1. 10.1 million words of U.S. tax code
According to the Tax Foundation, the U.S. tax code is approaching nearly 10.1 million words as of 2015. This includes about 2.41 million words of federal internal revenue code and a whopping 7.66 million words of tax regulation. With the average novel averaging 64,000 words, the U.S. tax code could fill up more than 157 novels.
If that's not crazy enough, what's truly remarkable is that the U.S. tax code was only 1.4 million words in length in 1955. In other words, an average of 144,500 words have been added to the tax code every year between 1955 and 2015!
2. More than 100 pages of instructions for Form 1040
Having more than 10 million words in tax law means the instructions on how to prepare your taxes are pretty long as well. The PDF download from the IRS that details the instructions to complete Form 1040, the "simplest" tax form that federal taxpayers prepare, is 105 pages long! It's no wonder a Pew Research Center poll found that 72% of Americans surveyed believe the federal tax code is too complex.
3. Nearly 5,000 tax code changes enacted between 2001 and 2012
Along with 10 million-plus words and lengthy instructions, taxpayers have also dealt with a flurry of tax changes handed down by lawmakers on Capitol Hill. According to data from the IRS, Congress handed down nearly 5,000 changes to the U.S. tax code between 2001 and 2012.
4. 8.9 billion hours spent complying with federal tax laws
What does this all mean for taxpayers? In short, that they're spending a lot of cumulative time complying with federal income tax laws. A recent estimation from the IRS suggested taxpayers would spend an aggregate of 8.9 billion hours complying with federal income taxes in 2016. That's nearly the equivalent of 13,000 lifetimes! In dollar terms, the IRS estimated an expense of $409 billion, including $99 billion in individual income tax compliance costs and $147 billion in business income tax compliance annually.
5. 72% of Americans qualify for free tax assistance
Another thing most Americans don't realize is that they may qualify for free assistance in preparing their taxes. Based on a survey conducted by the United Way this past January, 72% of working Americans who were making below the $62,000 threshold required to access free online tax software found on the IRS's website were unaware that they could qualify for free tax filing and counseling. Low-income and elderly taxpayers are two groups that can, in particular, benefit from free preparation assistance.
6. 41 times more likely to find an error on a paper return
Speaking of preparing your taxes, one thing to never, ever do is complete your taxes by hand using a paper return. According to statistics offered by TurboTax, which was gathered from the IRS, the error rate for e-filed tax returns is a minuscule 0.5% compared to an error rate of paper returns of 21%! That's a 41 times greater likelihood of an error by filing a paper return. Calculating errors and indecipherable handwriting are just two reasons your paper return could be flagged.
7. 66% of taxpayers get a federal refund
If you're a working American, there's a better chance than not that you'll be netting a federal refund from Uncle Sam come tax time. According to an annual survey released by the National Retail Federation in February, 66% of all taxpayers are expected to receive a refund check. For those curious, half of all refund recipients plan to use their refund to bolster their savings accounts.
8. 69% of all taxes are paid by the top quintile of earners
Whoever said that the wealthy don't pay their fair share of income taxes? According to research from the Tax Policy Center, the top quintile of income earners (i.e., the top 20% of earners in the U.S.) paid 69% of all federal taxes, with the top 1% paying more than 43%. Comparatively, the bottom 60% of earners paid an aggregate of 12% of federal taxes. Of course, it's also worth pointing out that the top quintile of earners received 51% of all major tax breaks, too.
9. The highest marginal tax rate of 39.6% is quite low, historically
The current progressive tax system has seven brackets ranging from a low of 10% to a peak of 39.6%. While 39.6% might seem like a lot for the wealthy to pay on peak income, it's nowhere near the peak of what they used to pay. In 1986, the peak marginal tax rate was 50%, in 1980, it stood at 70%, and in 1944-1945 it was an eye-popping 94%! The next time you complain about your marginal tax rate, be thrilled that you aren't paying a 94% marginal tax rate.
10. 45.3% of all households paid no federal income tax in 2015
On the other end of the spectrum, the Tax Policy Center analyzed tax year data from 2015 and discovered that 77.5 million American households had zero taxable income or a negative tax rate, resulting in an estimated 45.3% of American households not having to a pay red cent in taxes.
11. Tax evasion costs the federal government $458 billion a year
There's also quite a bit of "cheating" associated with tax time. Earlier this year, the IRS released data showing that tax evasion cost the federal government an average of $458 billion per year between 2008 and 2010. Of this $458 billion per year, just $52 billion is expected to be recovered each year. If there is a silver lining here, the IRS also found that 81.7% of taxes owed make it to the IRS on time.
12. The IRS spent $0.35 for every $100 in tax collected in 2015
Finally, in their disdain for the IRS and the tax preparation process, most Americans probably overlook just how incredibly efficient the IRS is as an organization. In 2015, for every $100 that the agency collected in federal taxes, it spent just $0.35. That's even more efficient than the Social Security Administration, where expenditures typically run around 0.7% of total revenue collected.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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