Tax Complexity Now Costs the US Economy over $544 Billion Annually

While the One Big Beautiful Bill Act (OBBBA) changed the federal taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code in many ways, it largely maintained the overall structure and complexity of the code. In a separate analysis, we examined the ways in which the OBBBA simplified and complicated the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source; here, the focus is the scale of the code’s underlying complexity, based on official estimates of the cost of compliance.

The federal tax code imposes many costs on the US economy. The most direct costs, of course, are the roughly $5.2 trillion in federal taxes (as of fiscal year 2025) that consume 17.3 percent of US gross domestic product (GDP). Our tax system is heavily reliant on individual and corporate income taxes, which economists at the Organisation for Economic Co-operation and Development have found are the most harmful for economic growth.

A less direct cost is the time taken out of our lives to comply with a Byzantine tax code that requires billions of hours to complete IRS paperwork and file tax returns. In fiscal year 2025, Americans filed 271.4 million tax returns. Of these, about 65 percent, or 176.5 million, were individual and corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. returns, while another 34.1 million were employment tax returns.

According to the latest estimates from the White House Office of Information and Regulatory Affairs (OIRA), Americans will spend almost 6.9 billion hours complying with IRS tax filing and reporting requirements in 2026. This is equal to 3.32 million full-time workers—more than the population of Chicago and nearly 35 times the workforce the IRS employed in FY 2025—doing nothing but tax return paperwork for a full year.

If we assume a reasonable hourly wage, the 6.9 billion hours Americans spend complying with the tax code cost the economy roughly $387 billion in lost productivity. In addition, the IRS estimates that Americans spend roughly $157 billion annually out-of-pocket to comply with the tax code. This brings total compliance costs to $544 billion, over 1.7 percent of GDP.

Measuring Taxpayers’ Compliance Burden

The Paperwork Reduction Act of 1980 (PRA) requires the IRS to estimate how many hours it takes taxpayers to complete each form and the amount of out-of-pocket costs they must spend to prepare each form.

The IRS has spent decades developing various methods of estimating compliance costs. In 1984, when most taxpayers filed paper tax returns, the IRS sponsored a study that used survey data and a mathematical model to estimate the compliance costs imposed by tax regulations. The model has since been updated many times to reflect changes in the economy, taxpayer populations, filing methods, and tax laws. The new model uses surveys of individual and business taxpayers in addition to IRS administrative data to estimate both time and out-of-pocket costs of filing taxes.

According to an IRS white paper explaining the organization’s methods:

Taxpayer compliance burden is generally defined as the time and money taxpayers spend to comply with their tax filing responsibilities. Time-related activities include recordkeeping, tax planning, gathering tax materials, learning about the law, and completing and submitting the return. Out-of-pocket costs include expenses such as purchasing tax software, paying a third-party preparer, and printing and postage. Taxpayer compliance burden does not include a taxpayer’s tax liability, economic inefficiencies caused by sub-optimal choices related to tax deductions or credits, or psychological costs.

The IRS estimates taxpayer out-of-pocket costs will total $157 billion in 2026 (which may be an underestimate, as many forms are assigned a zero cost).

The Price of Our Time Totals over $387 Billion Annually

Complying with the tax code costs more than just the out-of-pocket expenses and money on the checks that taxpayers send to the IRS by April 15^th. Every hour spent complying with tax forms and returns is an hour that parents cannot spend with their families or business owners cannot spend growing their firm. Economists call these opportunity costs.

Using hourly wage and benefit estimates from the Bureau of Labor Statistics (BLS), we can put a dollar figure on the time that the IRS estimates individual and business taxpayers spend complying with the tax code.

For individual income tax forms, we use an hourly compensation cost of $47.55. This figure combines the $33.54 average hourly wage for all occupations with the $14.01 average hourly benefit costs for private sector workers.

For business-related and more complex returns—such as returns for estates and trusts or depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and disco schedules—we use an hourly compensation cost of $59.57. This figure combines the average hourly wage for accountants and auditors, $45.56, with the $14.01 average benefits for private sector workers.

Put in dollar terms, the 6.9 billion hours needed to comply with the tax code conservatively computes to $387.5 billion each year in lost productivity. When we add the $157.1 billion in out-of-pocket costs, it raises the total tax compliance cost to American taxpayers to $544.6 billion.

These tax compliance burden costs exceed 1.7 percent of US GDP— larger than the share of GDP collected by the federal corporate income tax, and more than 28 times the IRS’s roughly $19.0 billion in expenditures in 2025.

Much of the Tax Burden Falls on Businesses

The table below lists the 25 most burdensome tax regulations. While a considerable amount of taxpayer hours and dollars are spent on individual tax forms (more than 1.9 billion hours at a total annual cost of $142.4 billion), individuals account for about 26 percent of the total compliance cost (and roughly 28 percent of total hours). 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 parties that prepare documents issued to individual taxpayers—such as W-2 and 1099-INT forms—which are predominantly businesses.

The total tax compliance burden on US businesses is split among myriad tax forms. The compliance cost of business (corporate) income tax returns is more than $130.2 billion. Employment tax returns and related forms cost $46.1 billion, while depreciation schedules cost another $26.7 billion. The business income and depreciation compliance costs increased compared to last year.

Hours spent per form offer another way to see the outsized additional compliance burden imposed on businesses: the IRS estimates it takes 12 hours on average to comply with the main individual form, the 1040—8 hours for individuals without business income, and 21 hours for individuals with business income. As bad as it may sound to spend almost three full-time days filing individual income taxes, corporations have it worse: the IRS estimates it takes 90 hours on average to comply with Form 1120, the main form for taxable corporations. For small corporations, it takes 40 hours, and for large corporations, it takes 610 hours—more than 15 full-time weeks.

Requirements for Cryptocurrency Transactions Are the Most Burdensome

OIRA’s time estimates to comply with Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” are a testament to why Congress should estimate the compliance cost of new laws before it enacts them. In 2022, it required more than 674 million hours to complete. Driven largely by new rules enacted during the Biden administration in the bipartisan Infrastructure Investment and Jobs Act (IIJA), that time jumped to nearly 2.2 billion hours at a cost of just over $130 billion, making 1099-B the most time-consuming form.

According to the Joint Committee on Taxation (JCT), these provisions were expected to raise about $28 billion in new tax revenues over a decade, or less than $3 billion per year, a fraction of the compliance cost the IIJA 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, expanding the term “broker” to include cryptocurrency exchange operators and requiring brokers to report transactions for cryptocurrencies on Form 1099-B. It also requires businesses to report transactions made with digital assets of over $10,000, though the IRS has said this requirement will not apply until regulations are issued.

Notably, the OIRA estimate for Form 1099-B has not been updated since April 2024, when the IRS projected roughly 4.4 billion annual responses at 30 minutes each. That projection predates the shift of digital asset reporting to Form 1099-DA, which brokers must use beginning with 2025 transactions, and the repeal of reporting rules for decentralized brokers in early 2025. The 1099-DA compliance burden was estimated at 2.3 million hours as of December 2024. Because the 1099-B line accounts for nearly a quarter of the total burden cost in this report, our headline estimate is sensitive to this single, likely outdated projection; a revised 1099-B estimate reflecting the 1099-DA transition could substantially change next year’s totals.

The IRS Is the Primary Source of Regulatory Costs in America

OIRA estimates show that taxpayer compliance now comprises 60.0 percent of the 11.49 billion total hours Americans spend complying with federal paperwork and 78.0 percent of the $201.5 billion in government-wide out-of-pocket costs for regulations.

These figures are remarkable as advances in technology to assist taxpayers in preparing and filing their tax returns have not averted increases in compliance burdens. The IRS burden estimates do incorporate efficiency gains from the 94 percent of individual federal tax returns prepared using software and 83 percent of all returns filed electronically. But the efficiency gains from increased computing speeds have proved no match for tax complexity, which increases steadily decade after decade.

This year’s data continues the trend. This paper’s estimate of $544.6 billion is up from last year’s estimate of $536.1 billion, an increase of roughly $8.5 billion. The composition of that increase is worth noting. The total time burden actually fell by about 190 million hours, from 7.09 billion to 6.90 billion. But the dollar value of that time held roughly steady at $387.5 billion, down less than $1 billion, because average hourly compensation rose over the same period. The entire net increase is therefore attributable to out-of-pocket costs, which climbed about $9.1 billion, from $148.1 billion to $157.1 billion. 

The decline in hours is concentrated in two categories: individual income tax returns, down roughly 181 million hours, and business income tax returns, down roughly 78 million. Notably, this is not explained by a drop in filing volume. The IRS processed 271.4 million returns and other forms in fiscal year 2025, up from 266.6 million the prior year. The out-of-pocket increase, meanwhile, is concentrated in business income tax returns, whose estimated costs rose from $71.6 billion to $79.2 billion.

This year’s data also begins to reflect the OBBBA. A new line for the “Trump Account” election appears for the first time, adding roughly 64.9 million hours or $3.9 billion of compliance burden, and the application for an Employer Identification Number now ranks among the 25 most burdensome collections. However, not all new OBBBA provisions are reflected. While Trump Accounts and the vehicle loan interest deduction (estimated at 2 million hours) have standalone compliance cost estimates, other new deductions (such as the deduction for qualified tips, the additional senior deduction, and the deduction for qualified overtime pay) do not have standalone entries and are not folded into the income tax return either.   

As in prior years, some large provisions—including the pass-through deduction (Section 199A, Form 8995)—no longer appear as separately estimated line items and are effectively folded into other categories (for 2024, the compliance cost of the pass-through deduction was estimated at $19.8 billion)

America's Tax Compliance Burden in 2026 Will Top 6.8 Billion Hours and $544 Billion

Source: Hourly and out-of-pocket estimates: Office of Information and Regulatory Affairs (OIRA), “Inventory of Currently Approved Information Collections,” downloaded Jul. 14, 2026, https://www.reginfo.gov/public/do/PRAMain
Wages for all occupations: US Bureau of Labor Statistics, “May 2025 National Occupational Employment and Wage Estimates,” (00-0000 All Occupations), https://www.bls.gov/oes/current/oes000000.htm
Wages for 13-2011 Accountants and Auditors: https://www.bls.gov/oes/current/oes132011.htm
Average benefits for private sector workers: https://www.bls.gov/news.release/ecec.t04.htm

Going Forward

This year’s report only partly reflects the OBBBA, which became law on July 4, 2025, with many provisions taking effect for the 2026 filing season. As more OBBBA provisions are incorporated, the estimated cost of compliance should rise. At the same time, though, the next updated estimate for 1099-B should bring the overall estimated cost of compliance down.

As this report has shown, a complex tax code is an extra burden to taxpayers. It imposes out-of-pocket costs and requires billions of hours to comply with. Lawmakers should therefore consider complexity when making changes to the tax code.


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