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 subsequent analysis, we will address the ways in which the OBBBA simplified or complicated certain aspects of the code, but, in the meantime, it is important to understand the scale of the 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 $4.9 trillion in federal taxes (as of 2024) that consume 17.1 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 determined are the most harmful for economic growth.
A less direct cost is the precious time taken out of our lives to comply with a Byzantine tax code that requires billions of hours completing mountains of IRS paperwork and tax returns. In 2024, Americans filed 266.6 million tax returns. Of these, over 65 percent, or 174.4 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 33.6 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 7.1 billion hours complying with IRS tax filing and reporting requirements in 2025. This is equal to 3.4 million full-time workers—almost the population of Los Angeles and nearly 38 times the workforce the IRS employed in FY 2024—doing nothing but tax return paperwork for a full year.
If we assume a reasonable hourly wage, the 7.1 billion hours Americans spend complying with the tax code costs the economy roughly $388 billion in lost productivity. In addition, the IRS estimates that Americans spend roughly $148 billion annually in out-of-pocket costs to comply with the tax code. This brings total compliance costs to $536 billion, or nearly 1.8 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 whitepaper 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 $148 billion in 2025 (which may be an underestimate, as many forms are assigned a zero cost).
The Price of Our Time Totals over $388 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 every April 15th. 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 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 forms, we use an hourly compensation cost of $46.15. This figure combines the $32.66 average hourly wage for all occupations with the $13.49 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 used an hourly compensation cost of $58.45 for accountants and auditors. According to the BLS, the average hourly wage for these workers is $44.96, to which we added the $13.49 average benefits for private sector workers.
Put in dollar terms, the 7.1 billion hours needed to comply with the tax code conservatively computes to $388.1 billion each year in lost productivity. When we add the $148 billion in out-of-pocket costs, it raises the total tax compliance cost to American taxpayers to a staggering $536.1 billion.
These tax compliance burden costs are equal to 1.8 percent of US GDP—larger than the 1.7 percent of GDP the corporate income tax is expected to collect in 2025 and over 23 times the IRS’s 2025 annual budget.
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 (over 2.1 billion hours at a total annual cost of $146.9 billion), this accounts for less than 28 percent of the total time and burden cost of tax compliance. Thus, most of the remaining tax compliance burden is borne by businesses.
America’s Tax Compliance Burden in 2025 Will Top 7 Billion Hours and $536 Billion
Taxpayers will spend over $148 billion in out-of-pocket costs to comply with tax forms. The value of the time they spend complying with the code will reach roughly $388 billion.
Source:
Hourly and out-of-pocket estimates: Office of Information and Regulatory Affairs (OIRA), “Inventory of Currently Approved Information Collections,” downloaded Jun. 4, 2025, https://www.reginfo.gov/public/do/PRAMain
Wages for all occupations: US Bureau of Labor Statistics, “May 2024 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
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 over $126.2 billion. Their quarterly tax filings cost $47.3 billion to comply with, while depreciation schedules cost another $26.2 billion. These are all increases from last year’s cost of compliance.
As an alternative way to see the huge additional compliance burden imposed on businesses, consider that the IRS estimates it takes 13 hours on average to comply with the main individual form, the 1040—8 hours for individuals without business income, and 24 hours for individuals with business income. As bad as it may sound to spend three full-time days filing individual income taxes, corporations have it worse: the IRS estimates it takes 100 hours on average to comply with Form 1120, the main form for taxable corporations. For small corporations, it takes 50 hours, and for large corporations, it takes 690 hours—more than 17 full-time weeks.
Requirements for Cryptocurrency Transactions Are the Most Burdensome
OIRA’s updated 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, these forms required more than 674 million hours to complete. But thanks in large part to the new rules enacted during the Biden administration in the bipartisan Infrastructure Investment and Jobs Act (IIJA), these hourly costs have jumped to nearly 2.2 billion hours at a cost of nearly $127.6 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.
Notably, the estimates for the time burden of 1099-B were finalized in April 2024 and have not been updated since the last version of Tax Foundation’s cost of compliance report was published. Accordingly, they may be out of date. Starting in 2025, brokers must instead use 1099-DA forms, which are projected to have a compliance burden of 2.3 million hours as of estimates published in December 2024—not a trivial amount, but nowhere near the projected costs associated with 1099-B. Additionally, some crypto reporting requirements were repealed in early 2025. Digital asset tax collection is still a developing area, and it would not be surprising if these estimates changed significantly in the coming years.
The IRS Is the Primary Source of Regulatory Costs in America
OIRA estimates show that taxpayer compliance now comprises 60.9 percent of the 11.65 billion total hours Americans spend complying with federal paperwork and 72.7 percent of the $203.5 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 prevented increases in compliance burdens. The IRS burden estimates do incorporate the efficiency gains from the 94 percent of individual federal tax returns prepared using software and the 90 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 buck the trend, at least at first glance. This paper’s estimate of $536 billion is slightly lower than last year’s estimate of $546 billion. However, this difference is in large part explained by an IRS estimation methodology change to one form: the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs.. The new IRS methodology reported income tax for estates and trusts compliance required 31.9 million hours to comply with—far less than last year’s estimate of 356.9 million hours—while the estimate of out-of-pocket expenses remained the same. In last year’s Tax Foundation report, that meant annual compliance costs of $20.2 billion for the estate tax, while our new estimate is $7.4 billion.
That explains more than the monetary gap, but only about a third of the hourly gap. The other explanation of the decline is the decline in tax returns filed: total returns filed declined from 271.47 million in 2023 to 266.62 million in 2024, which would naturally also reduce the number of hours spent on returns. It is not clear why the number of returns filed declined, however.
The gap may also be explained by the absence of an updated compliance cost estimate for the pass-through deduction, also known as Section 199A or Form 8995, the qualified business income deduction. In last year’s paper, this provision was estimated to take 336.1 million hours. Assuming that this burden would be the same for this year, the total annual burden cost for the Section 199A deduction would be $19.8 billion. The time burden accounts for a little over a third of the gap between this year and last year, and the total burden more than covers the gap between this year and last. It is unclear why this cost estimate is missing this year, and the IRS has thus far not responded to our request for clarification.
Going Forward
This analysis is based on data produced before the passage of the OBBBA, which became law on July 4, 2025. Aspects of that law, such as repealing some green energy credits passed in the InflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin Reduction Act, may result in reduced compliance costs. On the other hand, the OBBBA included plenty of provisions that will likely increase compliance costs, from new tax deductions for tipped income, auto loan interest, and overtime pay to complex requirements related to foreign entities of concern (FEOC) layered on top of the IRA green energy credits that are not fully repealed. Measuring compliance costs is an ongoing task, and must be revisited when tax laws change.
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