The federal tax code’s complexity imposes a massive compliance burden on the U.S. economy—an estimated $544 billion each year, equivalent to more than 1.7 % of GDP.
Scale of the burden
- In fiscal year 2025, Americans filed 271.4 million tax returns (≈65 % individual and corporate income returns, the rest employment returns).
- The White House Office of Information and Regulatory Affairs (OIRA) projects 6.9 billion hours spent on IRS filing and reporting in 2026—about 3.32 million full‑time workers, roughly the population of Chicago.
- Valuing this time at average compensation yields ≈$387 billion in lost productivity.
- The IRS estimates $157 billion in out‑of‑pocket expenses (software, preparers, printing, etc.).
- Total compliance cost: $544 billion (≈$544.6 billion in the latest estimate).
How the cost is calculated
- Individual‑tax hour value: $47.55 (average $33.54 wage + $14.01 benefits).
- Business‑tax hour value: $59.57 (average $45.56 accountant wage + $14.01 benefits).
- These rates convert the 6.9 billion hours into the $387 billion productivity loss figure.
Distribution between individuals and businesses
| Category | Share of total cost | Share of total hours |
|---|---|---|
| Individuals | ~26 % | ~28 % |
| Businesses | ~74 % | ~72 % |
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Business compliance costs dominate:
- Corporate income‑tax returns: >$130 billion
- Employment tax returns: $46 billion
- Depreciation schedules: $27 billion
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Form‑specific time estimates (average):
- Form 1040 (individual): 12 hours (8 h without business income, 21 h with).
- Form 1120 (corporate): 90 hours (40 h for small firms, 610 h for large firms).
Cryptocurrency reporting drives a large share of the burden
- Form 1099‑B (broker and barter exchange transactions) required ≈674 million hours in 2022; after the Infrastructure Investment and Jobs Act (IIJA) rules, the estimate rose to ≈2.2 billion hours and a cost of >$130 billion.
- The same provisions are projected to raise only ≈$3 billion per year in revenue—a tiny fraction of the compliance cost.
- The 1099‑B estimate has not been updated since April 2024; the shift to Form 1099‑DA for digital‑asset reporting (effective 2025) may substantially alter future totals.
Federal regulatory context
- Taxpayer compliance accounts for 60 % of the 11.49 billion total hours Americans spend on federal paperwork and 78 % of the $201.5 billion government‑wide out‑of‑pocket regulatory costs.
- Despite high electronic filing rates (94 % of individual returns prepared with software, 83 % filed electronically), the time burden continues to rise as the code becomes more intricate.
Recent trends and the One Big Beautiful Bill Act (OBBBA)
- Total compliance cost increased from $536 billion (2025) to $544 billion (2026), a rise of $8.5 billion.
- The increase stems entirely from higher out‑of‑pocket costs (+$9.1 billion); total hours actually fell by ≈190 million.
- The OBBBA, enacted July 4 2025, added a “Trump Account” line, contributing ≈64.9 million hours (≈$3.9 billion). Other new provisions (e.g., vehicle‑loan interest deduction) are not yet reflected in the estimates.
- Business‑income‑tax return costs rose from $71.6 billion to $79.2 billion, driving most of the out‑of‑pocket increase.
Implications
- The compliance burden exceeds the share of GDP collected by the federal corporate income tax and dwarfs the IRS’s own budget (≈$19 billion in FY 2025).
- As more OBBBA provisions take effect for the 2026 filing season, total costs are expected to rise unless offset by revisions to high‑cost forms such as 1099‑B.
- Policymakers face a clear trade‑off: each new reporting requirement adds billions in taxpayer costs while generating relatively modest revenue gains. Reducing code complexity could lower both time and out‑of‑pocket expenses for individuals and businesses alike.
Source article: taxfoundation.org
