Americans Failed to Pay Record $688 Billion in Taxes – Here’s Who The IRS Is Auditing Next
Last updated 11/10/2025 by
SuperMoney TeamEdited by
Andrew LathamSummary:
Americans failed to pay an estimated $696 billion (gross) in federal income taxes for tax year 2022—the latest IRS projection, with a net gap of $606 billion after enforcement. The IRS continues to narrow the gap through increased audits on high-income earners, gig workers, and crypto holders, bolstered by Inflation Reduction Act funding (despite partial rescissions). Voluntary compliance remains steady at ~85%, but better data and third-party reporting are helping recover more owed taxes. New comprehensive estimates are expected in fall 2025.
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Americans fall short on taxes—again
In tax year 2022, U.S. taxpayers failed to pay a projected $696 billion gross in federal income taxes, according to the latest IRS projections released in October 2024.[3] This reflects economic growth rather than declining compliance. The net gap, after late payments and enforcement, is $606 billion.[2] New comprehensive estimates are expected in fall 2025.[0]
The IRS attributes the gap to underreported income, non-filing, and underpayment, with enforcement ramping up via IRA-funded hires and technology.
Where the missing tax dollars come from
The $696 billion gross tax gap for 2022 breaks down as:
- ~77% from underreporting (~$536 billion)
- ~14% from underpayment
- ~9% from non-filing
Business income (especially non-farm proprietor) remains the largest underreporting source (~47% of individual underreporting).[27] Gig and self-employment income lacks automatic withholding, driving noncompliance.
IRS ramps up enforcement efforts
To close the gap, the IRS is:
- Increasing audits on high-income (>$400k) and large entities
- Hiring staff and analysts (despite recent cuts)
- Using AI and better data to detect issues
Commissioner Danny Werfel emphasizes fairness. New tools include Form 1099-DA for crypto (starting 2025 transactions) and phased third-party reporting from apps.[35]
Gig workers, crypto, and offshore accounts under the microscope
Gig economy shifts mean more untaxed income. Compliance jumps with third-party data.
Focus areas:
- Cryptocurrency (new broker reporting via 1099-DA in 2025)[36]
- Offshore accounts
- Complex entities
DeFi broker rules were repealed in 2025, but centralized platforms remain reportable.[39] As Natasha Sarin notes, visibility drives reporting.
Why the tax gap matters
Voluntary compliance remains steady at ~85%. However, the net gap strains federal revenue and adds to deficit concerns. The FY2025 federal budget deficit is estimated at $1.8 trillion.[56] Debate is intensifying as Trump-era tax cuts near their 2025 expiration.
The path ahead
The Inflation Reduction Act boosted IRS capabilities, but budget rescissions and hiring freezes create uncertainty. Continued investment in better data, automation, and third-party reporting could recover billions—without raising tax rates. New estimates are expected in fall 2025.[15]
Frequently asked questions
What is the tax gap?
The difference between taxes owed and what is paid on time. The latest IRS projection is $696 billion gross and $606 billion net for tax year 2022.[3]
Who is most likely to underreport income?
Self-employed individuals and gig workers—especially those who receive income through apps or platforms that don’t automatically report to the IRS—are most likely to underreport income.
How is the IRS addressing unpaid taxes?
The IRS is expanding audits on high-income and crypto users, deploying third-party data collection (e.g., 1099-DA), and enhancing tech systems to flag noncompliance.
How do payment apps factor into tax reporting?
Form 1099-K thresholds are being phased in:
- $5,000 in 2024
- $2,500 in 2025
- $600 from 2026 onward
Only business transactions are included. Personal payments (e.g., splitting rent) are not taxable.
Will this affect average taxpayers?
The IRS is focusing enforcement on high-income, crypto, and complex returns. W-2 employees with straightforward filings are unlikely to be affected.
Key takeaways (November 10, 2025)
- 2022 gross tax gap: $696 billion (net $606 billion).
- IRS targets high-income, gig, and crypto earners with audits and better data.
- Business income is the largest source of underreported taxes.
- Payment app reporting thresholds drop to $600 by 2026 (business only).
- Voluntary compliance remains steady at ~85%.
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