Tax Compliance Statistics
Last updated: June 2026 · 6 sourced statistics
Tax gaps — the difference between tax owed and tax paid — run to colossal sums: roughly $700 billion a year in the US and €128 billion of VAT in the EU. Underreporting of business and self-employment income is the largest US component, which is why invoicing records and 1099 information reporting keep expanding. Sources: IRS and European Commission.
Key takeaways
- The gross US federal tax gap is projected near $700 billion annually (IRS).
- About 85% of US tax owed is paid voluntarily and on time.
- Underreporting — especially of business income — is the largest component.
The statistics
The IRS projects the gross US tax gap at roughly $700 billion per year in its most recent estimates.
Source:Internal Revenue Service, Tax Gap Estimates2024
The voluntary compliance rate — tax paid voluntarily and on time as a share of true liability — runs around 85% (IRS).
Source:Internal Revenue Service2024
Underreporting is by far the largest tax-gap component, dominated by business and self-employment income with little third-party reporting (IRS).
Source:Internal Revenue Service2024
Income subject to substantial information reporting (W-2 wages) is misreported at only ~1%; income with little reporting (sole-proprietor income) is misreported at far higher rates (IRS research).
Source:Internal Revenue Service2024
The EU's parallel problem: €128 billion of VAT went uncollected in 2023 — 9.5% of total liability (European Commission).
Source:European Commission VAT Gap Report2025
Businesses must issue 1099-NEC forms for contractor payments of $600+ — the information-reporting net that compresses underreporting (IRS).
Source:Internal Revenue Service2025
Methodology & sources
Compiled June 2026 from IRS tax gap research and the European Commission's VAT Gap report. Tax gap figures are statistical projections published by the tax authorities themselves.
Frequently asked questions
What is the tax gap?
The difference between taxes legally owed and taxes actually paid on time — roughly $700 billion a year gross in the US (IRS).
Why does invoicing matter for tax compliance?
Invoices are the primary audit evidence for business income and deductions. Where third-party reporting exists, misreporting collapses to ~1% — which is why 1099 and e-invoicing regimes keep expanding.
How long should I keep invoices for tax purposes?
At least 3 years in the US (the standard IRS limitations period), 6–7 years to be safe; many VAT jurisdictions require 6–10 years.
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