A recent survey reveals that more than half of Americans struggle with fundamental tax concepts, raising concerns about potential financial repercussions. The 2024 National Tax Literacy Poll, conducted by the Tax Foundation, indicated that only 2 percent of respondents exhibited “proficient” tax knowledge, while over 50 percent lacked basic tax literacy.
According to the report by the Tax Foundation, understanding tax principles is crucial for individuals and families. It influences various decisions, including financial planning, job opportunities, and even voting behavior. Caroline Bruckner, a tax professor at the American University Kogod School of Business and managing director of the Kogod Tax Policy Center, emphasized the implications of this lack of knowledge.
Bruckner noted, “Too many Americans don’t know, number one, what’s due when, and number two, how tax is calculated and both the politics and policy behind that.” Many individuals particularly struggle with the intricacies of federal income tax, as highlighted in the findings of the National Tax Literacy Poll. The majority of participants expressed uncertainty about key aspects of income tax filing.
Often, taxpayers do not grasp how the income tax system operates, particularly the progressive tax rate structure, which dictates that individuals with higher incomes pay a larger percentage in taxes. Bruckner elaborated, “All too often, people don’t understand how income tax is calculated, and that it’s a progressive tax rate structure.”
This lack of understanding can lead to significant consequences. In the best-case scenario, individuals may find themselves relying on paid accountants and tax preparers, diverting funds that could be allocated elsewhere. In more severe instances, insufficient tax knowledge may result in legal issues, especially for small business owners and self-employed individuals.
Bruckner pointed out the challenges faced by small business owners who do not fully understand deductible expenses. “They may be overly aggressive with claiming deductions that aren’t really deductions, and it could get them into trouble,” she warned.
To address this issue, Bruckner is advocating for increased government investment in tax education. “It’s not enough to fund the collection of tax,” she stated. “You have to fund the education of the tax base, the taxpayers, about what they’re going to owe and when. It’s not just the federal government, it’s state and local governments too.”
As tax season approaches, Bruckner also advises caution regarding the use of artificial intelligence for tax preparation. “Generative AI is not yet smart enough to do a reliable job on tax returns,” she cautioned.
For those seeking to improve their tax knowledge, the Internal Revenue Service (IRS) offers educational materials on its website. One valuable resource is the Volunteer Income Tax Assistance (VITA) program, which provides free tax preparation services in collaboration with nonprofit organizations across the United States. This program is available to qualifying taxpayers, including those earning $67,000 or less, individuals with disabilities, and limited English-speaking taxpayers.
Bruckner encourages taxpayers who wish to assist others to consider becoming volunteer preparers for the VITA program, which operates in every state. As tax literacy remains a pressing issue, the need for accessible resources and education has never been more critical.
