NCPA - National Center for Policy Analysis

Confusion Costs Taxpayers More Than $1 Billion

April 12, 2002

Confusion over the federal tax code has caused as many as 2.2 million Americans to overpay their taxes by more than $1 billion in a single year because they claimed the standard deduction instead of itemizing, according to a new study from the General Accounting Office. Half of all the returns where overpayments occurred were prepared by a third party tax professional. The average overpayment to the Internal Revenue Service was $438.

The overpayments hit taxpayers at all income levels, but were especially hard on those with modest incomes:

  • 853,000 people who overpaid their taxes reported an income level between $25,000 and $50,000.
  • 774,000 people who overpaid their taxes reported an income level between $50,000 and $75,000.
  • Only 62,000 people who overpaid reported an income level of more than $100,000.
  • 76 percent of the returns reported income between $25,000 and $75,000.

The study was requested by House Majority Leader Dick Armey (R-Tex.), who said, "Even trained professionals are wrong half the time. A tax code no one understands is a tax code that commands fear instead of respect. Tax simplification is a key component of tax reform and will restore justice to the system.

Source: General Accounting Office, "Tax Deductions: Further Estimates of Taxpayers Who May Have Overpaid Federal Taxes by Not Itemizing," GAO-02-509, April 11, 2002

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