CNBC reported the baseline for the top 1% in the United States in 2023 were earnings of at least $652,657. However, the IRS has recently set its sights on a specific group within the United States’ top earners: those who make over $1 million annually and have a tax debt exceeding $250,000.
This crackdown marks a notable shift in tax enforcement, with the IRS vowing not to intensify audits for individuals falling below this financial threshold.
The IRS’s new target
The IRS’s decision to zero in on those making over $1 million with significant tax debt is part of a broader effort to close the tax gap. This is the difference between taxes people owe and those the IRS actually collects. By honing in on this group, the IRS aims to recover a significant portion of this unpaid tax revenue.
The wealth discrepancy
The top 1% in the United States holds a substantial share of the nation’s wealth. However, this does not necessarily translate into equitable tax payments. Some individuals in this group employ various legal tactics, such as deductions, credits and offshore accounts, to reduce their tax obligations.
Complex tax laws
The U.S. tax code is intricate and offers numerous opportunities for tax planning. Some wealthy individuals utilize the complexity of the tax laws to their advantage. they find ways to legally reduce their tax liability, which can lead to a lower effective tax rate than many middle-income Americans pay.
Lack of resources
The IRS has faced challenges in recent years that have limited the agency’s ability to conduct audits and enforce tax compliance in higher income earners. These individuals often have the means to hire professionals and experts who can find loopholes and other methods to legally avoid paying taxes. The IRS does not have the resources to fight against them. But a new law helped divert funding to the IRS to allow them the ability to finally go after this group of people.
As tax enforcement efforts intensify, the IRS aims to ensure that all taxpayers, regardless of income, meet their tax obligations.