Filing Taxes Will Cost Americans $544 Billion This Year

The complexity and burden of the tax code add insult to injury.

The process of paying taxes manages to add insult to injury by making it burdensome to comply as you cough up the money the government steals from you. The time lost keeping up on tax rules, filing paperwork, and calculating our own mugging is stolen from the rewarding areas of life, and the costs are diverted from productive activities. How much do we lose in satisfying government's demands? A new report answers that question in painful detail, just in time for the October 15 extended filing deadline.

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The High Cost of Paying High Taxes

"The federal tax code imposes many costs on the US economy. The most direct costs, of course, are the roughly $5.2 trillion in federal taxes (as of fiscal year 2025) that consume 17.3 percent of US gross domestic product (GDP)," the Tax Foundation's Alex Muresianu and Guy Cardwell wrote last week. "A less direct cost is the time taken out of our lives to comply with a Byzantine tax code that requires billions of hours to complete IRS paperwork and file tax returns."

Drawing on data from the White House Office of Information and Regulatory Affairs (OIRA), Muresianu and Cardwell note that "Americans will spend almost 6.9 billion hours complying with IRS tax filing and reporting requirements in 2026. This is equal to 3.32 million full-time workers—more than the population of Chicago and nearly 35 times the workforce the IRS employed in FY 2025—doing nothing but tax return paperwork for a full year."

That's an enormous amount of time and energy diverted from Americans' own priorities—like working, running businesses, and raising families—to satisfy federal paperwork requirements so we can cough up the money the government extorts from us under threats of fines and imprisonment. Few of us want to pay that money to begin with, but we have to surrender part of our lives to calculate the amount owed and satisfy tax rules.

As you might expect, all that tax-consumed time comes attached to a hefty price tag.

"If we assume a reasonable hourly wage, the 6.9 billion hours Americans spend complying with the tax code cost the economy roughly $387 billion in lost productivity," Muresianu and Cardwell add. "In addition, the IRS estimates that Americans spend roughly $157 billion annually out-of-pocket to comply with the tax code. This brings total compliance costs to $544 billion, over 1.7 percent of GDP."

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IRS: Taxpayer Compliance is 63% of the Federal Paperwork Burden

Ouch. Somebody should tell the Internal Revenue Service (IRS) that its system sucks and serves to rub Americans' noses in the painful process of handing money to an institution many of us dislike (polling finds that most of us distrust government, less than half of us believe what government officials tell us, and 89 percent of us consider the federal leviathan corrupt). Oh, wait. The IRS already knows.

"The federal tax system required by the Internal Revenue Code imposes an enormous burden on taxpayers," acknowledges a 2023 internal paper on the costs faced by taxpayers. "It is estimated that taxpayer compliance burden is 63% of the annual federal paperwork burden."

For example, the IRS document estimated the total time to fill out a basic 1040 form—including recordkeeping, learning about the law and the form's requirements, preparation, and submission—at 13 hours and 35 minutes under an old model developed in 1984. It's 13 hours under a newer model. The newer model puts filing costs at $250 per taxpayer.

The IRS concedes that "self-employed taxpayers generally incur substantially higher burden than other taxpayers."

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Too Complex To Comply?

Interestingly, the IRS also admits that the complexity of its system is so onerous that it discourages compliance, to the detriment of both taxpayers and the government. It concedes that its model "ignores the impact that complexity has on what taxpayers choose not to do because it is too burdensome, such as choosing not to keep records necessary to claim a tax benefit or even not to comply with certain reporting requirements."

So, the idea that the tax code is insanely complex, and that complying with its dictates consumes an enormous share of our time and wealth, isn't an outlier idea cooked up by the Tax Foundation. The nation's tax collectors agree.

The Tax Foundation's cost estimates are also in line with other organizations' numbers. In calculating compliance costs for last year's taxes, the National Taxpayers Union Foundation noted that "taxpayers will spend an estimated 6.93 billion hours to complete their 2025 taxes—down from a peak of 7.93 billion hours in 2023" and that "tax compliance costs include $319.7 billion in lost time and at least $157.1 billion in out-of-pocket expenses, including tax software and professional services."

Muresianu's and Cardwell's figures for the time consumed by tax compliance are essentially identical, and their somewhat higher price tag is easily explained by one more year of rising costs.

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Business Filers Really Get Slammed

The Tax Foundation analysts comment that individual tax returns account for more than 1.9 billion hours at a total annual cost of $142.4 billion, but they agree with the IRS that business compliance, including for those of us who work for ourselves or as freelancers and contractors, are where the real pain is felt. "Individuals account for about 26 percent of the total compliance cost (and roughly 28 percent of total hours). Thus, most of the remaining tax compliance burden is borne by businesses."

Larger businesses—even if they are only a hair larger—really get slammed, they add. "The IRS estimates it takes 90 hours on average to comply with Form 1120, the main form for taxable corporations. For small corporations, it takes 40 hours, and for large corporations, it takes 610 hours—more than 15 full-time weeks."

Changes in the field of finance look poised to make things even worse. The Tax Foundation study reveals that the most burdensome requirements are those imposed on cryptocurrency transactions. That may be another good reason to keep digital deals anonymous and off the books.

So, whether you're contemplating next year's taxes, paying quarterlies, or anticipating the extended deadline for filing your return, you'll want to put aside some time and money for getting your paperwork in order and ready to submit. There are few things as time-consuming and expensive as paying taxes.