Candice Horbacz
The immense financial and time cost associated with navigating the United States federal tax code is projected to reach an staggering $544 billion and consume nearly 6.9 billion hours of taxpayer effort in 2026. This colossal burden, equivalent to more than 1.7 percent of the nation’s Gross Domestic Product (GDP), underscores the enduring complexity of the U.S. tax system, even in the wake of recent legislative changes like the One Big Beautiful Bill Act (OBBBA). While the OBBBA introduced numerous modifications to the federal tax code, its primary effect has been to largely preserve the intricate structure and inherent complexity that has long characterized American taxation. A prior examination delved into how the OBBBA specifically impacted the individual income tax, but the broader focus here is on the sheer scale of the code’s underlying complexity, quantified through official estimates of compliance costs.
The federal tax code imposes a multifaceted array of costs on the U.S. economy. The most direct and visible of these are the estimated $5.2 trillion in federal taxes slated for fiscal year 2025, which collectively account for 17.3 percent of U.S. GDP. A significant portion of this revenue is derived from individual and corporate income taxes, which economists at the Organisation for Economic Co-operation and Development (OECD) have consistently identified as among the most detrimental tax types for overall economic growth due to their potential to disincentivize investment, savings, and labor. However, beyond the direct financial levies, a less tangible but equally pervasive cost is the vast amount of time extracted from Americans’ lives to fulfill their tax obligations. Navigating what many describe as a Byzantine tax code necessitates billions of hours dedicated to completing Internal Revenue Service (IRS) paperwork and filing tax returns annually.
In fiscal year 2025 alone, Americans are estimated to have filed a staggering 271.4 million tax returns. Of this substantial figure, approximately 65 percent, or 176.5 million, comprised individual and corporate income tax returns, with an additional 34.1 million attributed to employment tax returns. The sheer volume of these filings offers a glimpse into the administrative labyrinth taxpayers must traverse.
The Staggering Scale of Compliance: Hours and Dollars
According to the latest estimates compiled by the White House Office of Information and Regulatory Affairs (OIRA), American taxpayers are collectively expected to dedicate almost 6.9 billion hours to complying with IRS tax filing and reporting requirements in 2026. To put this into perspective, this monumental time commitment is equivalent to the full-time labor of 3.32 million individuals working for an entire year. This workforce is larger than the entire population of Chicago, the third-largest city in the United States, and represents nearly 35 times the total workforce employed by the IRS itself in fiscal year 2025. This vast human capital is diverted solely to the administrative task of tax return preparation and submission, rather than contributing to productive economic activity or personal pursuits.
Quantifying this time in monetary terms reveals an even more striking economic impact. Assuming a conservative, reasonable average hourly wage across the diverse spectrum of taxpayers, the 6.9 billion hours spent on tax compliance translates into an estimated $387 billion in lost productivity for the U.S. economy. This figure represents an opportunity cost – the value of what could have been produced or enjoyed had that time been spent otherwise. Furthermore, the IRS independently estimates that Americans spend approximately $157 billion annually in direct, out-of-pocket expenses to comply with the tax code. These expenses encompass a range of costs, from purchasing tax preparation software to engaging professional tax preparers, and covering miscellaneous expenditures like printing and postage. When these two components are aggregated, the total compliance costs soar to an astounding $544 billion, exceeding 1.7 percent of the nation’s GDP.
This substantial burden is not merely an abstract economic statistic; it has tangible implications. To illustrate, these tax compliance costs dwarf the federal corporate income tax collection and are more than 28 times greater than the IRS’s own operating budget, which stood at roughly $19.0 billion in 2025. This disparity highlights the systemic inefficiency inherent in a tax system that requires such extensive self-administration from its populace.
Measuring the Taxpayer Burden: A Regulatory Mandate
The methodology behind these compliance cost estimates is rooted in the Paperwork Reduction Act of 1980 (PRA). This federal statute mandates that government agencies, including the IRS, rigorously estimate the time and out-of-pocket expenses taxpayers incur to complete each required form. The PRA was enacted to minimize the paperwork burden on the public and to improve the quality and utility of information collected by federal agencies.
The IRS has, over several decades, developed and refined various sophisticated methods for estimating these compliance costs. A seminal study in 1984, conducted when paper tax returns were the predominant filing method, utilized survey data and a mathematical model to quantify the compliance burden imposed by tax regulations. This foundational model has undergone numerous updates to adapt to the evolving economic landscape, shifts in taxpayer demographics, changes in filing methodologies (e.g., the rise of electronic filing), and significant amendments to tax laws. The current iteration of the IRS model integrates data from extensive surveys of both individual and business taxpayers, alongside the agency’s own administrative data, to derive comprehensive estimates for both the time and monetary costs associated with tax filing.
An IRS white paper detailing the organization’s methodological approach defines taxpayer compliance burden 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." It is important to note that the IRS’s estimate of $157 billion in out-of-pocket costs for 2026 might itself be a conservative figure, as critics like the National Taxpayers Union Foundation have pointed out that many forms are still assigned a zero cost, potentially understating the true financial outlay.
The Economic Price of Time: Opportunity Costs
The cost of tax compliance extends far beyond the direct payments made to the IRS or the out-of-pocket expenses for software and preparers. Every hour an individual or business dedicates to understanding, preparing, and submitting tax forms represents an hour that could have been spent in other productive or personally enriching ways. For parents, it could be time with their families; for business owners, it could be time invested in innovation, growth, or serving customers. Economists refer to these forgone benefits as "opportunity costs."
To monetize these opportunity costs, the analysis leverages hourly wage and benefit estimates from the Bureau of Labor Statistics (BLS). For individual income tax forms, an hourly compensation cost of $47.55 is applied. This figure is derived by combining the national average hourly wage for all occupations ($33.54) with the average hourly benefit costs for private sector workers ($14.01). For more complex business-related returns, such as those for estates and trusts or intricate depreciation schedules, a higher hourly compensation cost of $59.57 is utilized. This accounts for the specialized skills often required, combining the average hourly wage for accountants and auditors ($45.56) with the same average private sector benefits.
When these hourly compensation costs are applied to the 6.9 billion hours estimated for compliance, the total lost productivity conservatively calculates to $387.5 billion annually. Integrating this with the $157.1 billion in out-of-pocket costs elevates the comprehensive tax compliance burden on American taxpayers to $544.6 billion. As previously noted, this figure significantly exceeds 1.7 percent of U.S. GDP, surpassing the total revenue collected from the federal corporate income tax and representing a staggering multiple of the IRS’s own operating budget.
Unequal Burden: Businesses Bear the Brunt
While individual taxpayers undoubtedly face a substantial compliance burden, the data reveals that businesses shoulder the disproportionately larger share. Although individuals account for over 1.9 billion hours and $142.4 billion in total annual costs, this represents approximately 26 percent of the total compliance cost and roughly 28 percent of the total hours. Consequently, the vast majority of the remaining tax compliance burden, both in terms of time and money, is borne by businesses of all sizes.
The IRS estimates confirm 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." However, these individual costs are somewhat mitigated by the fact that a considerable portion of the administrative burden related to individual income reporting falls upon the parties responsible for preparing and issuing documents such as W-2 and 1099-INT forms, which are predominantly businesses.
The total tax compliance burden on U.S. businesses is distributed across a myriad of tax forms and regulations. Corporate income tax returns alone contribute more than $130.2 billion to the compliance cost. Employment tax returns and their associated forms add another $46.1 billion, while depreciation schedules, critical for businesses to account for asset wear and tear, contribute $26.7 billion. Notably, the compliance costs for business income and depreciation have shown an increase compared to the previous year’s estimates, indicating a growing pressure point for companies.
The disparity in compliance burden between individuals and businesses is starkly evident when examining the average hours required per form. The IRS estimates that complying with Form 1040, the main individual income tax form, takes an average of 12 hours. This breaks down to 8 hours for individuals without business income and 21 hours for those with business income. While dedicating nearly three full-time days to individual income tax filing might seem arduous, corporations face a significantly heavier lift. Form 1120, the primary form for taxable corporations, is estimated to require an average of 90 hours for compliance. This average masks further differentiation: small corporations might spend around 40 hours, but large corporations face an immense burden of 610 hours—equivalent to more than 15 full-time weeks of work. This demonstrates how complexity scales dramatically with business size and operational intricacy.
Cryptocurrency Reporting: A New Frontier of Complexity
A particularly illuminating example of how new legislative mandates can dramatically escalate compliance costs is seen in the requirements for cryptocurrency transactions. Form 1099-B, "Proceeds from Broker and Barter Exchange Transactions," has become a focal point for this escalating burden. In 2022, compliance with this form already demanded over 674 million hours. However, largely driven by new rules enacted under the Biden administration as part of the bipartisan Infrastructure Investment and Jobs Act (IIJA), that time commitment surged to nearly 2.2 billion hours at an estimated cost of just over $130 billion, positioning Form 1099-B as the single most time-consuming tax form.
The Joint Committee on Taxation (JCT) had projected that these IIJA provisions would generate approximately $28 billion in new tax revenues over a decade, translating to less than $3 billion annually. This revenue projection stands in stark contrast to the estimated compliance cost of $130 billion imposed on taxpayers by these very provisions, raising serious questions about the cost-benefit analysis of such legislation.
The IIJA notably expanded reporting requirements for digital assets. It broadened the definition of "broker" to encompass cryptocurrency exchange operators and mandated that these brokers report cryptocurrency transactions on Form 1099-B. Furthermore, the Act included a requirement for businesses to report transactions involving digital assets exceeding $10,000, although the IRS has stated that this specific requirement will not be enforced until implementing regulations are officially issued.
It is crucial to note a potential caveat in the current OIRA estimates for Form 1099-B. These figures have not been updated since April 2024, at which time the IRS projected approximately 4.4 billion annual responses, each requiring about 30 minutes. This projection predates several significant developments: the planned shift of digital asset reporting to a new Form 1099-DA, which brokers must begin using for 2025 transactions, and the anticipated repeal of reporting rules for decentralized brokers in early 2025. The initial compliance burden for Form 1099-DA was estimated at 2.3 million hours as of December 2024. Given that the Form 1099-B line item currently accounts for nearly a quarter of the total compliance burden reported, any revision to its estimate, reflecting the transition to 1099-DA and other changes, could substantially alter the overall compliance cost totals in future reports. This highlights the dynamic nature of tax law and its profound impact on compliance metrics.
The IRS: A Primary Driver of Regulatory Costs
Beyond the realm of taxation, OIRA estimates reveal a broader landscape of regulatory burden across the federal government. Taxpayer compliance with IRS requirements now constitutes an astonishing 60.0 percent of the 11.49 billion total hours Americans spend complying with all federal paperwork. Furthermore, IRS-related compliance accounts for a massive 78.0 percent of the $201.5 billion in government-wide out-of-pocket costs for regulations. These figures are particularly remarkable considering the significant advancements in technology designed to assist taxpayers in preparing and filing their tax returns. The IRS’s own burden estimates do incorporate efficiency gains derived from the fact that 94 percent of individual federal tax returns are prepared using software, and 83 percent of all returns are filed electronically. However, these technological efficiencies have proven insufficient to counteract the relentless increase in tax complexity, a trend that academic research suggests has been steadily climbing decade after decade.
The latest available data continues this upward trend in overall compliance costs. This year’s estimate of $544.6 billion represents an increase from last year’s figure of $536.1 billion, an rise of approximately $8.5 billion. A closer examination of this increase reveals nuanced dynamics. The total time burden actually experienced a slight decrease, falling by about 190 million hours from 7.09 billion to 6.90 billion. However, the dollar valuation of this time remained largely stable at $387.5 billion, declining by less than $1 billion, primarily because average hourly compensation rates rose over the same period. Consequently, the entire net increase in the total compliance cost is attributable to a significant climb in out-of-pocket expenses, which rose by approximately $9.1 billion, from $148.1 billion to $157.1 billion.
The observed decline in hours is concentrated in two key categories: individual income tax returns, which saw a reduction of roughly 181 million hours, and business income tax returns, down by approximately 78 million hours. It is important to clarify that this reduction in hours is not a reflection of a drop in filing volume; on the contrary, the IRS processed 271.4 million returns and other forms in fiscal year 2025, an increase from 266.6 million in the prior year. Meanwhile, the notable increase in out-of-pocket costs is primarily concentrated in business income tax returns, whose estimated costs surged from $71.6 billion to $79.2 billion.
This year’s data also begins to reflect the initial impacts of the OBBBA, which was enacted into law on July 4, 2025. A new line item for the "Trump Account" election appears for the first time, contributing an estimated 64.9 million hours or $3.9 billion to the compliance burden. Additionally, the application for an Employer Identification Number (EIN) has now ascended to rank among the 25 most burdensome collections. However, it is crucial to recognize that not all new provisions introduced by the OBBBA are yet fully reflected in these estimates. While "Trump Accounts" and the vehicle loan interest deduction (estimated at 2 million hours) have standalone compliance cost estimates, other newly enacted deductions, such as the deduction for qualified tips, the additional senior deduction, and the deduction for qualified overtime pay, currently lack standalone entries and are not yet explicitly factored into the broader income tax return calculations. This phased incorporation of new legislation means the full impact of OBBBA on compliance costs is still unfolding. As in previous years, some significant provisions, including the popular pass-through deduction (Section 199A, Form 8995), no longer appear as separately estimated line items and have effectively been folded into other categories. For context, in 2024, the compliance cost of the pass-through deduction alone was estimated at $19.8 billion.
Going Forward: The Imperative of Simplicity
The current report provides only a partial reflection of the One Big Beautiful Bill Act (OBBBA), which became law in mid-2025, with many of its provisions taking effect for the 2026 filing season. As more of the OBBBA’s provisions are progressively incorporated into official estimates, it is anticipated that the overall estimated cost of compliance will likely continue to rise. Concurrently, however, the next updated estimate for Form 1099-B, once it fully accounts for the transition of digital asset reporting to Form 1099-DA and the repeal of certain decentralized broker reporting rules, is expected to bring down that specific component of the overall estimated cost of compliance.
As this comprehensive analysis has consistently demonstrated, a complex tax code imposes a substantial and multifaceted burden on taxpayers. It not only necessitates significant out-of-pocket expenses but also demands billions of hours of valuable time annually, diverting resources that could otherwise be utilized for economic growth, innovation, or personal well-being. This pervasive complexity acts as a hidden tax on productivity and prosperity. Therefore, when deliberating changes to the nation’s tax code, lawmakers must prioritize and rigorously consider the implications for compliance costs. The pursuit of revenue generation or specific policy objectives should always be weighed against the very real and quantifiable burden placed upon the American people and businesses tasked with navigating an increasingly intricate system. Simplification, rather than incremental complexity, should be a guiding principle in future tax reform efforts to alleviate this ever-growing economic drag.
