Even though the One Big Beautiful Bill Act made substantial changes in the Tax Code, one area where that may not be seen so much is in terms of simplification, according to a new study.
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Billions of taxpayer hours and dollars are spent on individual tax forms (over 2.1 billion hours at a total annual cost of $146.9 billion), but that accounts for less than 28% of the total time and burden cost of tax compliance.
Instead, much of the remaining tax compliance burden falls on businesses.
- The total tax compliance burden on U.S. businesses is split among myriad tax forms.
- The compliance cost of business (corporate) income tax returns is over $126.2 billion. Their quarterly tax filings cost $47.3 billion to comply with, while depreciation schedules cost another $26.2 billion.
These are all increases from last year's cost of compliance.
Cryptocurrency transaction requirements are most burdensome
Updated time estimates on how long it takes to comply with Form 1099-B, "Proceeds From Broker and Barter Exchange Transactions," show why Congress should estimate the compliance cost of new laws before enacting them.
- In 2022, these forms required more than 674 million hours to complete.
- But thanks in large part to the new rules enacted during the Biden administration in the bipartisan Infrastructure Investment and Jobs Act, these hourly costs have jumped to nearly 2.2 billion hours at a cost of nearly $127.6 billion, making 1099-B the most time-consuming form.
According to the Joint Committee on Taxation, these provisions were expected to raise about $28 billion in new tax revenues over a decade, or less than $3 billion per year, but that's a fraction of the compliance cost the infrastructure law imposed on taxpayers.
The IIJA also included new reporting rules on cryptocurrency transactions.
- Form 1099-B reports capital gains and losses from individual transactions, and it's typically used by brokerage firms and barter exchanges to report net gain or loss amounts. The IIJA increased the reporting requirements around digital assets.
Digital asset tax collection is still a developing area, and it would not be surprising if these estimates changed significantly in the coming years.
IRS regulatory costs
Taxpayer compliance now accounts for an estimated 60.9% of the 11.65 billion total hours Americans spend complying with federal paperwork and 72.7% of the $203.5 billion in government-wide out-of-pocket costs for regulations. Those costs in time and money come despite technology advances to help taxpayers prepare and file their tax returns. The IRS burden estimates incorporate the efficiency gains from the 94% of individual federal tax returns prepared using software and the 90% of all returns filed electronically.
But the efficiency gains from greater computing speeds are no match for tax complexity, which increases steadily each decade.
The analysis is based on data from before the final passage of the OBBBA. Some provisions of that law, such as repealing some clean energy tax credits included in the Inflation Reduction Act, could lead to reduced compliance costs (but higher taxes on clean energy producers).
"On the other hand, the OBBBA included plenty of provisions that will likely increase compliance costs, from new tax deductions for tipped income, auto loan interest, and overtime pay to complex requirements related to foreign entities of concern layered on top of the IRA green energy credits that are not fully repealed," said Alex Muresianu, senior policy analyst at the Tax Foundation, in a statement Wednesday. "Measuring compliance costs is an ongoing task, and must be revisited when tax laws change."
