Ads by Money. We may be compensated if you click on this ad.A d

Does more funding for the IRS mean higher taxes and more audits?

That’s the question many Americans are asking now that the new Cut Inflation Act – a sweeping Democratic-led bill designed to tackle climate change, rising prices, taxes on corporations, the federal budget deficit and more – was passed by both the House and the Senate.

Legislation is heading for President Joe Biden’s office. Once he signs it into law, the bill will give the chronically underfunded and understaffed IRS a serious funding boost – $80 billion over the next decade, to be exact. Some $45 billion of that money is for “enforcement,” which includes hiring tens of thousands of new IRS agents.

Cue the outrage.

“Imagine IRS agents descending on America like a swarm of locusts,” Sen. Ted Cruz, R-Texas, said in an interview with Fox Business. “And by the way, these tax people are not here to prosecute billionaires. They are there to chase you. They are there to sue your small business. They’re here to sue your family.

So what can you expect from a cash-rich tax office? Here’s everything you need to know.

Will more IRS agents mean more audits?

Audits have a reputation for being a tedious and arduous process. Luckily, you probably don’t have anything new to worry about.

“These resources are absolutely not intended to increase audit control over small businesses or middle-income Americans,” IRS Commissioner Charles Rettig wrote in a recent letter to lawmakers. Rettig stressed that the agency’s goal is to keep audit rates from rising beyond their recent rates for households earning less than $400,000 a year.

For the 2019 tax year, only 0.17% of taxpayers earning between $25,000 and $200,000 a year were audited, according to a May report from the Government Accountability Office, or GAO. The same percentage of taxpayers earning between $200,000 and $500,000 per year were audited.

However, low-income workers’ audit rates are not negligible — 0.4% of people earning less than $25,000 a year were audited for the 2019 tax year, according to the GAO. A report from Syracuse University’s Transactional Records Access Clearinghouse found the IRS audited the nation’s lowest earners at five times the rate of all others in fiscal year 2021.

This is largely related to the high proportion of low-income households claiming the earned income tax credit. According to the GAO report, it is much easier and faster for the IRS to audit people who earn low wages and falsely claim the EITC than to audit the complex finances of millionaires and billionaires.

Regarding the new funding provided by the Inflation Reduction Act, the IRS has repeatedly stated that its goal is to increase enforcement for ultra-wealthy people who habitually underreport. what they owe. Rettig also argued that the improvements the agency can make with the money — think more staff and better IT support — will make it less difficult for people to comply with the law. In fact, he claimed that it could actually reduce the frequency of audits.

Former IRS Commissioner John Koskinen echoed that view in an interview with PBS Newshour last week: “The vast majority of taxpayers are going to benefit from this,” he said, because “the level of service to taxpayers will increase significantly”.

A small improvement could go a long way, at least in theory, to solving IRS problems like late refunds and the backlog of paper returns.

Ads by Money. We may be compensated if you click on this ad.A dAds by Money Disclaimer

byte Invisible Braces – over 200,000 confident smiles can’t be wrong!

With byte’s doctor-led treatment, you can get straight teeth with convenience and discretion. Get started today for $70 or less per month.

Get your kit today

Will the Inflation Reduction Act raise your taxes?

Here’s some other good news: chances are your tax bill won’t increase significantly due to the Inflation Reduction Act.

In a blog post last week, Howard Gleckman, senior tax policy researcher, wrote that other than a small group of business owners who are claiming large expenses reflected on their tax returns, “no one would pay more in federal personal income tax, no matter what”. their income,” once the bill becomes law.

This new pass-through rule is the only tax increase for individual taxpayers in the bill, according to Gleckman, who noted that it wouldn’t take effect until 2027 anyway.

You may also see your tax bill go down if you’re on the hunt for a new car this year – the bill will extend an existing tax credit for new electric vehicles and create a new credit for electric vehicles second hand.

“But on average,” Gleckman wrote, “the vast majority of households will barely notice a tax change one way or another.”

More money :

New Inflation Reduction Act Won’t Reduce Inflation, But It Could Save You Money

IRS wants to change crypto question on tax returns (again)

Try calling the IRS? You may need to talk to a robot