Does increased funding for the IRS indicate that taxes will be raised and there will be more audits?
Now that the new Inflation Reduction Act has been passed by both the House of Representatives and the Senate, this is the question that many people in the United States are asking.
The Inflation Reduction Act is a comprehensive piece of legislation that was spearheaded by the Democrats and designed to combat climate change, rising prices, corporate taxes, the federal budget deficit, and other issues.
The measure is on its way to the office of Vice President Joe Biden. Once he gives it his signature, the plan will give the Internal Revenue Service (IRS), which has been chronically underfunded and understaffed, a significant boost in funding – specifically, $80 billion over the next decade.
A portion of this money, approximately $45 billion, has been designated for “enforcement,” which involves the hiring of tens of thousands of new IRS officers.
During an interview with Fox Business, a Republican senator from Texas Ted Cruz made the remark, “Imagine agents from the IRS descending upon America like a swarm of locusts.”
And just so you know, these Internal Revenue Service officers aren’t out to get billionaires. They are in that location to hunt you down.
They intend to take advantage of your locally owned and operated company. They will target your loved ones if they have the chance.
So what can you anticipate from the Internal Revenue Service now that it is swimming in cash? Everything that you need to know is included below.
When there are more IRS agents, will there be more audits?
Audits have the reputation of being a troublesome and laborious process to go through. You should be relieved to know that there is probably nothing new for you to be concerned about.
In a recent letter to legislators, IRS Commissioner Charles Rettig stated that “these tools are in no way about raising audit scrutiny on small firms or middle-income Americans.”
Rettig emphasised that the agency’s goal is to prevent audit rates from rising beyond their recent rates for households earning less than $400,000 per year. This goal applies only to households earning less than $400,000 per year.
According to a report published in May by the Government Accountability Office, or GAO, the percentage of taxpayers with annual incomes between $25,000 and $200,000 who were subject to an audit for the 2019 tax year was only 0.17%.
A similar proportion of taxpayers with annual incomes between $200,000 and $500,000 were selected for an audit.
However, audit rates on lower-income workers are not negligible. According to the GAO, 0.4% of people earning less than $25,000 per year were audited for the 2019 tax year.
This represents a significant number of individuals. According to a study conducted by the Transactional Records Access Clearinghouse at Syracuse University during the 2021 fiscal year, the Internal Revenue Service conducted audits of the nation’s lowest earners at a rate that was five times higher than that of everyone else.
This can be attributed, in large part, to the significant number of low-income households that take use of the Earned Income Tax Credit.
According to the findings of the GAO report, it is much simpler and more expedient for the Internal Revenue Service (IRS) to audit individuals who earn low wages and incorrectly claim the Earned Income Tax Credit (EITC) than it is for the IRS to audit the complex financial situations of millionaires and billionaires.
When it comes to the increased cash provided by the Inflation Reduction Act, the Internal Revenue Service (IRS) has stated on multiple occasions that its goal is to boost enforcement for those who routinely underreport what they owe in terms of their tax obligations.
Rettig has also argued that the enhancements that the agency will be able to make with the money (think more staff and better IT support) will make it easier for people to comply with the law.
The money will be used to make these improvements. In point of fact, he asserted that it had the potential to lessen the number of audits that were performed.
In an interview with PBS Newshour that took place the week before last, former IRS Commissioner John Koskinen shared a similar point of view.
He stated that “the vast majority of taxpayers are actually going to benefit” from the proposed changes because “the level of taxpayer service is going to increase significantly.”
In theory, even a small amount of progress may make a significant difference toward resolving IRS issues such as the backlog of paper returns and the delay in processing refunds.
Will the Inflation Reduction Act lead to an increase in the amount of money you owe in taxes?
There is a significant possibility that the Inflation Reduction Act will not lead to any appreciable rise in your tax liability, which is yet another piece of positive information to share with you.
Tax Policy Senior Fellow Howard Gleckman stated in a blog post that after the bill is signed into law, “nobody would pay more in federal individual income tax, no matter what their income,” except a small group of business owners who claim large pass-through expenses on their income tax returns. Gleckman’s statement was made about individuals who claim large pass-through expenses on their tax returns.
According to Gleckman, the new pass-through rule is the sole tax hike for individual taxpayers that is included in the law, and he pointed out that it won’t even go into force until 2027 anyhow.
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If you’re in the market for a new car this year, the bill will expand an existing tax credit for new electric vehicles and create a new credit for used electric vehicles, so there’s a chance you could see your tax bill go down as a result. In addition, there’s a chance you could see your tax bill go up.
Gleckman said that “but on average,” the great majority of households will barely feel any tax adjustment, in either direction.
