IRS audits help the agency collect money that tax fraudsters owe the federal government, but experts say they also serve another important purpose: They help stop fraud.
This can cause a lot of excitement, of course. HI RS it says About 6 in 10 taxpayers cite anxiety about being audited as a reason to be honest about their taxes.
Meanwhile, the IRS swore to increase audits of taxpayers with annual incomes over $400,000 as a way to increase revenue and crack down on tax evaders, funded by the Inflation Reduction Act. After the 2022 law was passed, about a quarter of voters expressed concern about being hit with an audit, according to for Morning Consult research.
So what are the chances of being audited? Very low. Just 0.2% of all individual income tax returns filed for the 2020 tax year were audited, according to the most recent data available from the IRS. This means that about 1 in 500 tax returns are audited each year.
Admittedly, some people face higher audit risks than others, and one of them may surprise you. The taxpayers most likely to be audited are those with annual incomes exceeding $10 million – about 2.4% of these returns were audited in 2020. But the second group most likely to be audited are low-income taxpayers and moderates who demand tax on labor income. Credit or EITC.
Why might the EITC trigger an audit?
The higher audit fee for people claiming the EITC has drawn criticism from policy experts. The Bipartisan Policy Center grades that these exams tend to fall disproportionately on people of color, in part because they are more likely to qualify for the tax credit.
People can claim different amounts through the EITC based on their income and the number of dependent children. For example, a married couple filing jointly with three children and less than $63,398 in income can claim the maximum EITC amount of $7,430. But the most a single taxpayer without children can claim is $600.
EITC returns may be flagged if IRS records show that the taxpayer does not qualify for all or part of the credit, such as claiming a child who is not actually eligible (which can happen if they are over the age of 19 and do not have a full age). -student). About 8 in 10 returns audited that claimed the EITC had incorrectly claimed a child or misreported income, the National Taxpayer Advocate noted in a 2022 report report.
Still, these audits are slightly different from the type a wealthier taxpayer would typically face. The IRS relies on so-called “correspondence audits“to handle EITC issues, which are handled through letters and phone calls rather than in-person visits from an IRS agent, or how audits are handled with high-income taxpayers.
Are taxpayers more or less likely to be audited these days?
Quite the opposite. In fact, the audit rate has been declining for years, according to IRS data.
For example, in 2014, the agency audited about 9.4% of all tax returns of people earning more than $10 million a year — which is nearly four times the current audit rate, IRS data shows .
Middle-class taxpayers are also much less likely to be audited today. IRS numbers show that the audit rate for people with annual income of $50,000 to $75,000 was 0.4% in 2014 – also four times higher than the current audit rate.
The reason, the IRS says, is in part due to workforce reductions. In fiscal year 2022, the agency had about 79,000 full-time equivalent workers, a 9.1% decline from 2013. But the IRS is now beefing up its staff, thanks to funding from the Inflation Reduction Act , and says it is focusing on increasing audits. for those earning above $400,000.
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