The gap between what Americans owe in federal taxes and what actually gets paid on time has widened to roughly $696 billion a year, according to a new federal audit, extending a rise that has been building for most of the past decade. The estimate covers tax year 2022 and comes from an audit of how the IRS chases one narrow slice of that shortfall: taxpayers who never file a return in the first place. For every household that files honestly and pays what it owes, the gap represents money the government has calculated it is owed but has not collected.
A Watchdog’s New Number, and What It Measures
The Treasury Inspector General for Tax Administration published the $696 billion figure on August 31, 2026, in Report No. 2026-308-047, “Agencywide Coordination Could Enhance the IRS’s Approach to Nonfilers.” The gross tax gap is defined as the difference between taxpayers’ true tax liability for a given year and the amount actually paid on time, before any credit for late payments or IRS enforcement. TIGTA’s audit attributes about $63 billion of the $696 billion, or roughly 9 percent, specifically to people who never filed a return at all; the much larger remainder reflects taxpayers who did file but underreported income or fell behind on amounts they had already told the IRS they owed.
How the New Estimate Compares to the Last One
The IRS’s own most recent formal tax-gap study before this one, covering tax year 2021, put the gross gap at $688 billion, a figure the agency announced in October 2023 as a jump from the roughly $550 billion average estimated for tax years 2017 through 2019. That study broke the $688 billion into three parts: $77 billion from nonfiling, $542 billion from underreporting on returns that were filed, and $68 billion from underpayment of tax that was reported but not paid on time. After factoring in late payments and enforcement collections, the IRS projected a net tax gap of $625 billion for tax year 2021. TIGTA’s newer $696 billion figure for tax year 2022 represents a further increase of roughly $8 billion, continuing a climb that has run from an average of about $496 billion in tax years 2014 through 2016 to nearly $700 billion within less than a decade.
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Why the Nonfiling Slice Draws Special Scrutiny
TIGTA’s audit focuses on the nonfiling component because, unlike underreporting or underpayment, it involves no return at all for the IRS to work from. The agency’s internal identification program flagged about 8.8 million potential nonfilers for tax year 2015; by tax year 2022 that number had grown to nearly 14.7 million, an increase of close to 5.9 million taxpayers. As of June 30, 2025, TIGTA found 38,824 high-priority nonfiler cases sitting in “first-notice status,” meaning the IRS had sent an initial notice but taken no further action, with an estimated $321.3 million in additional tax tied to the cases the agency could still act on.
What the Gap Means for Voluntary Compliance
The IRS frames the tax gap in terms of a voluntary compliance rate, the share of true tax liability paid on time without any enforcement. For tax years 2020 and 2021, that rate stood at about 85 percent, rising to a projected 86.3 percent for tax year 2021 once late payments and enforcement collections are factored in, down slightly from 87.0 percent for tax years 2014 through 2016, according to the IRS’s own October 2023 release. The agency has estimated that a single one-percentage-point increase in voluntary compliance would bring in about $46 billion in additional revenue, a figure that puts the scale of TIGTA’s newer $696 billion gross-gap estimate, and the roughly $63 billion piece of it tied to nonfiling, in perspective: closing even a modest share of the gap would represent a meaningful, if incomplete, offset to a shortfall that has grown for most of the past decade. The IRS has also cautioned that its published projections likely understate the true gap, since the underlying methodology cannot fully capture noncompliance tied to offshore accounts, digital assets and cryptocurrency, or income from flow-through business entities, all areas the agency has said it lacks sufficient data to measure with confidence.
A Strategy Document That Predates the Pandemic
The audit traces part of the widening gap to internal coordination that has not kept pace with the growth in nonfiler cases. The IRS’s Nonfiler Strategic Plan was finalized in May 2018 and has never been revised, and the committee responsible for overseeing nonfiler work across IRS divisions has not convened since September 2020. TIGTA issued six recommendations, including a call for an updated, agencywide strategy with clear executive ownership, and the IRS agreed to adopt all six. Until that strategy takes effect, the report’s own numbers, an $8 billion year-over-year rise on top of a gap that has grown by roughly $200 billion since the mid-2010s, stand as the clearest record of how far collection has fallen behind what is owed.
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This article was written with the assistance of AI and reviewed for accuracy before publication.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
