Can you confidently explain the basics of the U.S. tax system?
If you can’t, you’re not alone. The 2024 National Tax Literacy Poll, conducted by the Tax Foundation, revealed that more than half of respondents lacked “basic tax literacy,” while just 2 percent of respondents demonstrated “proficient” tax knowledge.
“Taxes play a critical role in the lives of individuals and families, and tax literacy can impact financial planning, job opportunities, where someone lives, and how they vote, among other decisions,” the Tax Foundation’s report reads.
The lack of tax literacy in the U.S. is a concerning problem, one that can have “very real consequences,” especially for taxpayers who own small businesses, according to Caroline Bruckner, a tax professor at the American University Kogod School of Business and the managing director of the Kogod Tax Policy Center.
Here’s what you need to know about tax literacy in the U.S.
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‘Too many’ Americans don’t understand their taxes
“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,” Bruckner said.
Many Americans struggle with federal income tax in particular, she said. This is reflected in the National Tax Literacy Poll, too, with the majority of respondents indicating they don’t know about, or aren’t sure about, basic concepts related to income tax filing.
“All too often, people don’t understand how income tax is calculated, and that it’s a progressive tax rate structure. And I don’t mean progressive in the political sense, but I mean the more income you make, the more tax that you pay,” Bruckner explained.
This can result in “very real consequences,” Bruckner said. In the best-case scenario, taxpayers are forced to rely on paid accountants and preparers, which means they’re putting money toward filing their taxes that they could use for something else, she explained.
But in the worst-case scenario, a lack of tax knowledge can get you in trouble — especially if you own a small business or are self-employed. For example, Bruckner pointed to the issues that arise when small business owners don’t have a complete grasp on what items they can deduct.
“They may be overly aggressive with claiming deductions that aren’t really deductions, and it could get them into trouble,” she said.
What can we do to improve tax literacy?
Bruckner is calling on officials at all levels of government to put more resources toward tax education.
“It’s not enough to fund the collection of tax,” she said. “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.”
When it comes time to file, Bruckner also suggests that taxpayers stay away from AI. “Generative AI is not yet smart enough to do a reliable job on tax returns,” she said.
The Internal Revenue Service’s website contains some educational materials for taxpayers who want to learn more. The IRS’s Volunteer Income Tax Assistance is also a helpful, free resource for people who need help preparing their taxes, Bruckner explained.
“VITA is an IRS tax preparation service that is administered in partnership with nonprofits and organizations throughout the United States,” she said. “It’s in every single state.”
The service is available for qualifying taxpayers, including those who “generally make $67,000 or less, persons with disabilities, and limited English-speaking taxpayers,” according to the IRS website. Taxpayers looking to help others can also sign up to be a volunteer preparer for the VITA program through the IRS.