Over the last few years, there have been fewer IRS audits, but that is a trend that is about change. The Inflation Reduction Act, passed in the Senate, is about to go to the House, which is sure to pass before heading over to President Biden for his signature. The Act proposes giving the IRS $80 Billion for enforcement and hiring.
When it comes to the IRS, enforcement usually means audits. Historically, middle-class workers and those earning less than $25,000 per year were audited at a much higher rate than those earning more than $400,000 per year.
The concern about audits is all over the news. In response, Treasury Secretary Janet Yellen announced that she is advising the IRS that new audits should be focused on those earning over $400,000 per year to ensure they are paying their fair share.
That sounds great. However, unless there is a drastic change in how the IRS determines which files to audit, the trend of the poorest Americans earning under $25,000 being audited at a rate of 5 times more than everyone else in the country will likely continue.
According to an analysis of IRS data by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University, about 13 tax returns out of 1,000 filed by those earning less than $25,000 were audited in the fiscal year ended September 30, compared with a rate of 2.6 for every 1,000 returns for people with incomes above $25,000.
Another group at a greater risk of an audit is those earning more than $100,000 per year. The IRS has been aggressively going after taxpayers that make more money. However, living in New York, a family earning $100,000 can hardly be considered rich due to the expensive cost of living, high local taxes, and, add to that, the recent out-of-control inflation, which saw prices of things like groceries and gasoline skyrocket.
It also doesn’t help middle and lower-income people when we hear that new laws being passed will be funded by the income related to IRS Audits. So, while we hear that middle-class workers and those living at or below the poverty line do not have to worry about more audits in the future, we will reserve judgment until we start to see who gets caught up in the new net funded by the Inflation Reduction Act.