Taxpayers paid $1.8 trillion in taxes to the federal government during fiscal year 2003.   Individuals, through income taxes and employment taxes, paid 83% of these taxes.   Corporations paid 17% of all federal taxes.  These figures do not include state and local taxes such as sales tax and property taxes. More than 70% of American households earn $50,000 or less and pay approximately 14% of all individual income taxes per year.  The middle 21%, those earning $50,000-$100,000 pay 24% of the tax burden.  The top 9% of 1040's filed, individuals earning at least $100,000 per year, paid 62% of all individual income taxes. Individual Returns (Size of AGI) % of all Returns filed % of Total Tax Paid Average Income Tax per return < $50,000 70.6% 13.8% 1,185 $50,000 - $100,000 20.6% 24.0% 7,052 $100,000 - $200,000 6.8% 21.7% 19,359 > $200,000 1.9% 40.6% 126,678 All 2003 Returns 100.0% 100.0% 6,073 Surprisingly only a third of all taxpayers itemize their deductions.  The other two-thirds claim the standard deduction.  The 2005 Standard Deduction (if you do not itemize) for singles is $5,000 and $10,000 for joint returns.  More than 54% of all returns are prepared by accounting firms and other paid preparers. Interesting Facts: If you make $94,891 or more, you are in the top 10% of all taxpayers. If you make $295,495 or more, you are in the top 1% of all taxpayers. There were 182,932 returns filed in 2003 with adjusted gross incomes of $1 million or more. back to top

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The federal government spent close to$2.5 trillion in fiscal year 2004.   Social security, defense, interest on the national debt and health care costs alone account for $1.8 trillion or 71% of the entire federal budget.  The federal government is spending about a half a trillion dollars more than we pay in taxes.  This additional spending is called the national deficit which is added to the national debt each year.   To balance the budget, on the spending side alone would require a 20% across the board cut. Federal Government Spending Fiscal Year 2004 (in billions of dollars) Social security benefits $496 20% National defense (military personnel, operations/maintenance) 456 18% Interest on Treasury debt securities 322 13% Healthcare for the retired (Medicare) 269 11% Healthcare for the poor/needy (Medicaid) 240 10% Welfare payments (food stamps, nutrition, housing, SSI, EIC) 196 8% Federal employee pensions and disability 95 4% Education, training, employment, and social services 88 4% Transportation (highways, airports, mass transit, marine) 65 3% Veterans benefits and services 60 2% Administration of justice 46 2% Federal unemployment benefits 42 2% Natural resources and environment 31 1% International affairs 27 1% General science, space, and technology 23 1% General government 22 1% Community and regional development 16 1% Agriculture 15 1% Commerce and housing credit 5 0% Total $2,512 100%                           back to top
What is the Tax Gap?  The Tax Gap is a term used to describe the difference between the tax that taxpayers should pay what they actually pay on a timely basis.  There are three components that make up this gap: Nonfiling (failure to file a tax return) Underreporting (understating income, overstating deductions) Underpayment (failure to fully pay reported taxes owed) The IRS National Research Program (NRP) measures noncompliance or this Tax Gap.  The NPR in 2001 estimated the Net Tax Gap at between 257 and 298 billion dollars and the noncompliance rate to be 15%-16.6%. Underreporting includes understated income, improper deductions, overstated expenses, and erroneously claimed credits.  Underreporting accounts for more than 80% of the Tax Gap. Individual income tax noncompliance accounts for about two-thirds of the Tax Gap at a figure of 198-234 Billion Dollars. Understated income, as opposed to overstated deductions, accounts for over 80% of individual underreporting.  A lack of reporting business activities, not wages or investment income, account for most of the understated individual income.  Federal Tax Gap Distribution Chart back to top
The IRS had a banner audit year in 2005, Commissioner Mark Everson announced at a televised press conference on November 3, 2005.  Everson said that audits of high-income taxpayers, corporations and small businesses jumped dramatically, and the IRS collected an unprecedented $47.3 billion. While audits of higher-income taxpayers and corporations received the most attention, the number of examinations jumped for every type of taxpayer in 2005. Of the 131 million individual tax returns filed in 2005, 1.2 million were examined, increasing the number of audits 20 percent over 2004. Audits of small businesses more-than doubled in 2005 from 2004, with 18,000 returns examined. Special audit targets "Our number one area of emphasis has been... high-income individuals and corporations," Everson explained at the press conference. He said that audits of businesses with more than $10 million increased 14 percent, bringing the total number of audits for those businesses to 20 percent. The IRS examined a staggering 45 percent of businesses with assets over $250 million. Likewise, audits of individual taxpayers with over $100,000 in income are at a 10-year high in 2005, with more than 220,000 examinations completed. Commissioner Everson expressed concern that the figure was "still too low," despite being double the 2001 rate. Deterrence The IRS's increased enforcement efforts are not merely an effort to collection billions in unpaid tax revenues. Increasing the audit rate also has the benefit of deterring taxpayers who may have otherwise been tempted to underreport income or exaggerate deductions. The IRS pointed out that both fear and fairness play a role in closing the "tax gap" that currently sits at approximately $350 billion. Customer service Despite the IRS's newly restored focus on tax-law enforcement, Everson said in his press conference that the IRS took great pains to ensure customer service did not suffer in 2005. Everson noted, "We want to have a balanced approach. He reported that the IRS has success in its customer service including a 95 percent overall taxpayer satisfaction rating. back to top