The Paperwork Reduction Act of 1980 requires the IRS to estimate the hours taxpayers spend completing each form and the out-of-pocket costs they incur to prepare them. When you consider that the IRS by law must spend actual taxpayer dollars every year to determine how much money and time is wasted complying with its own rules, you begin to realize how ridiculous this is.
Especially since no bureaucrat at The Service would ever say that any waste of time catering to their needs would ever be overkill.
According to the latest numbers from the Office of Information and Regulatory Affairs (OIRA), Americans will spend almost 6.9B hours complying with IRS tax filing and reporting requirements in 2026. This equals 3.32 million full-time workers, more than the population of Chicago and nearly 35 times the workforce of the IRS in FY 2025, doing nothing but tax return paperwork.
If we assume a reasonable hourly wage, the 6.9B hours cost the economy roughly $387B in lost productivity. In addition, the IRS estimates that Americans spend roughly $157B annually out-of-pocket to comply with the tax code.
This brings the total compliance cost to $544B, which is over 1.7% of GDP.
While individuals spend considerable hours and dollars on their tax forms (more than 1.9B hours at a total annual cost of $142.4B), they account for only 26% of the total compliance cost. Thus, most of the remaining tax compliance burden is borne by businesses.
The IRS estimates that “over half of the individual income tax compliance costs are associated with reporting and substantiating income, even for taxpayers with relatively simple sources of income.” Yet, it notes, these individual costs are minimized because much of the administrative burden falls on the businesses that prepare documents issued to individuals, like W-2s and 1099s.
The total tax compliance burden on US businesses is split among various tax forms that include…
1 – Business income tax returns at more than $130.2B
2 – Employment tax returns and related forms cost $46.1 billion
3 – Depreciation schedules cost another $26.7 billion.
The business income and depreciation compliance costs increased the most compared to last year.
Hours spent per form offer another way to see the outsized additional compliance burden imposed on businesses. OIRA’s time estimates to comply with Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” represent another high cost of doing business.
In 2022, completing it required more than 674M hours. Driven largely by new rules enacted for the bipartisan Infrastructure Investment and Jobs Act (IIJA), the time required jumped to nearly 2.2B hours, costing just over $130B and making Form 1099-B the most time-consuming form.
Let me leave you with this…
Personal Income Taxes didn’t exist in America before 1918. Woodrow Wilson created the tax to pay for the war debt from World War I.
Considering that fact makes it easy to understand how the Rockefellers, Carnegies, and Vanderbilts accumulated their vast fortunes.
I have a copy of one of the original 1040s framed on my Conference Room Wall. With instructions, it’s only four pages long.
Originally considered a “Millionaire’s Tax”, it began by imposing a 1% tax on annual incomes above $20K going up to a 6% on incomes over $500K. There were only six deductions allowed on the first 1040 that include…
1 – Business expenses
2 – Interest on Indebtedness
3 – Taxes paid, including Federal Income Tax which is now non-deductible on all Federal and State Tax Forms
4 – Trading Losses
5 – Debts which became worthless, and
6 – Depreciation
The sheer simplicity of the form lasted several decades until the mid-1960s. Around the time of my birth, Congress conducted a study (when are they not doing one?) to determine where most of the money was coming in to pay our nation’s bills.
For the first time, they discovered that the majority was coming in from Individual Income Taxes.
Prior to that, doing a return was easy. As a matter of fact, in your senior year at the Chicago Public School System, students were required to complete an income tax course making them capable of doing their own returns.
But then they started legislating major changes to the form. Those changes dramatically increased federal revenues and made it virtually impossible for the average Joe and Jane down the street to complete their own return.
And here we are 60 short years later, spending 6.9B hours doing returns totaling $544B in lost output. If anything, I’d say those numbers are low, after spending 45 hours every week for the past 37 years doing these ridiculous pieces of paper.
Just writing that sentence made me want to pour a Martini, a Martowni, or maybe a Marthreeni.
But look at the bright side.
If laid on one side the entire IRS Code measures almost 30″ in width, and there’s no end in sight to that growth.
As always, if you’re having problems with your accounting and tax work, I’m waiting for your call.
We’re all going to get through this. Let’s get through it together..
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, Accounting and Tax Work, Tax Planning, or Tax Representation, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
www.AccountingSolutionsLtd.com
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