Every year, as April 15 looms, millions of Americans brace themselves for the annual ritual of filing taxes. It’s a long and challenging process; you gather receipts, sift through documents, and try to decode the dense language of tax forms. For those who can afford it, professional help or tax software can ease a lot of this work and avoid costly mistakes. But even if you do everything by yourself, it will still cost you. After all, time is money.
A new study from the National Taxpayers Union Foundation (NTUF) reveals that Americans spent an estimated 6.5 billion hours preparing and filing their taxes in the 2024 tax season. The time lost to this bureaucratic maze carries an estimated opportunity cost of $280 billion. Adding direct expenses like tax preparer fees and software purchases, the total burden climbs to at least $414 billion. And that’s before considering the taxes actually paid to the government.
To put that figure in perspective, $414 billion is more than the annual revenue of all but two U.S. companies—Amazon and Walmart. It’s also nearly double what Americans spend on summer vacations. “Taxpayers would probably much rather be spending their hard-earned money and free time on vacation than poring over records to head off a tax audit,” the report notes.
The Growing Burden of Tax
The NTUF report, which analyzes data from the Internal Revenue Service (IRS), reveals that the cumbersome nature of the modern tax code is mostly to blame for this burden. While the total time spent on taxes decreased by 47 million hours compared to 2023, this reduction is largely due to methodological changes in how the IRS calculates compliance burdens for two specific forms. Without these adjustments, the burden would have risen to 6.61 billion hours.
The individual income tax, filed through Form 1040, remains the most time-intensive part of the system, consuming 2.25 billion hours and imposing a $142 billion compliance burden. Businesses have to devote even more work hours. Large corporations, for example, spend an average of 830 hours on tax compliance, compared to 55 hours for small businesses.
Out-of-pocket expenses are another major factor. Americans spent at least $133 billion on tax preparation software, professional services, and other filing costs. However, this figure is likely higher, as the IRS has not fully assessed the costs associated with all its forms. “The IRS needs to do a better job of tracking out-of-pocket expenses,” the report states. “Those required estimates are missing from some of the forms the IRS requires taxpayers to fill out.”
A Call for Reform
The annoyance and time burnt navigating the tax code is not a new problem. Since its inception in 1913, the U.S. income tax code has ballooned from 27 pages to over 4.2 million words, with associated regulations spanning 17,472 pages. Congress has made an average of 399 changes to the tax code annually since 2000, though the pace slowed to just 15 changes in 2023. Each new rule or exemption adds another layer of confusion for taxpayers.
Efforts to simplify the system have had mixed results. The Tax Cuts and Jobs Act of 2017, for example, reduced compliance burdens by increasing the standard deduction and shortening Form 1040. But these gains have been offset by the continued expansion of the tax code and the IRS’s struggle to modernize its operations. The agency’s core computer system, the Individual Master File, still runs on 1960s-era programming, and its 60 legacy case management systems often hinder customer service.
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The IRS has made some progress in improving taxpayer services, such as reducing phone wait times. However, a Government Accountability Office report found that the improved response rate is largely due to a steep decline in call volume, not better service. Additionally, IRS employees are restricted from answering questions on over 130 “out of scope” areas of the tax code, leaving many taxpayers without the help they need.
Beyond inefficiencies, concerns over data security loom large. The IRS collects an ever-expanding trove of taxpayer information, with third-party reporting requirements growing at a staggering rate. In 2022, the agency processed an average of 16 third-party forms per person in the U.S. If this pace continues, the volume of tax-related forms collected could surpass the global population by 2030. Security breaches, like the leak of taxpayer data to ProPublica by an IRS contractor, underscore the risks of managing such a vast system without robust safeguards.
Where Do We Go From Here?
In the US, tax compliance itself has become a hidden tax. The complexity of the system forces taxpayers to devote time and money just to fulfill their obligations.
Some steps could ease the burden. Simplifying the tax code would be the most effective solution. Improved IRS transparency on compliance costs would allow for a clearer picture of where taxpayers are struggling. Redirecting some of the agency’s funding toward modernization and customer service, rather than enforcement, could also help taxpayers navigate the system more efficiently.
With $414 billion and 6.5 billion hours on the line, there’s a great incentive for a fairer, simpler, and more efficient tax system.
