The Internal Revenue Service (IRS) released its report on the tax gap projections for tax year 2022, a detailed analysis showing the nation’s projected gross tax gap at $696 billion. This reflects the difference between projected “true” tax liability and the amount of tax that is actually paid on time. The 2022 gross tax gap comprises three components: (1) non-filing (tax not paid on time by those who do not file on time, $63 billion) which represents 9% of the gross tax gap; (2) underreporting (tax understated on timely filed returns, $539 billion) which represents 77% of the tax gap; and (3) underpayment (tax that was reported on time, but not paid on time, $94 billion) which represents 14% of the gross tax gap. The net tax gap is the gross tax gap less tax that subsequently will be paid, either voluntarily but late or collected through IRS administrative and enforcement activities. The net tax gap is the portion of the gross tax gap that will not be repaid. The IRS states that a projected $90 billion of the gross tax gap eventually will be paid, resulting in a 2022 net tax gap of $606 billion.
The tax gap projections in the report are also segmented by type of tax. The report shows that individual income tax makes up the largest components of the tax gap, contributing $514 billion to the gross tax gap and $447 billion to the next tax gap for 2022. While employee misclassification is not mentioned in the report, the report notes that the second and third largest components involve employment tax, which includes self-employment ($7 billion), and the corporation income tax ($37 billion).