A significant number of Americans lack a clear understanding of basic tax concepts, according to the 2024 National Tax Literacy Poll conducted by the Tax Foundation. The poll revealed that over half of the respondents demonstrated inadequate tax literacy, while only 2 percent showed proficient knowledge of the U.S. tax system. This lack of understanding can have serious implications for financial decision-making and overall civic engagement.
The report from the Tax Foundation emphasizes the crucial role taxes play in the lives of individuals and families. Caroline Bruckner, a tax professor at the American University Kogod School of Business and managing director of the Kogod Tax Policy Center, highlights the myriad ways tax literacy affects personal finance, job prospects, residency choices, and even voting behavior. Bruckner stated, “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 respondents expressed uncertainty regarding federal income tax, with a majority unable to grasp fundamental concepts related to income tax filing. Bruckner explained that the progressive tax rate structure—where higher income leads to higher taxes—is often misunderstood. This misunderstanding can lead to various issues, particularly for small business owners who may miscalculate deductions. “They may be overly aggressive with claiming deductions that aren’t really deductions, and it could get them into trouble,” she noted.
The consequences of tax illiteracy can be severe. In the best-case scenario, individuals may find themselves relying on paid accountants to navigate their taxes, diverting funds that could be used elsewhere. In more troubling situations, a lack of knowledge may result in legal complications for taxpayers, especially those who are self-employed or own small businesses.
Bruckner advocates for increased resources dedicated to tax education across all levels of government. “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.”
As tax season approaches, Bruckner cautions against relying solely on generative artificial intelligence for tax preparation, stating that it is not yet reliable enough for this purpose. For individuals seeking to improve their tax knowledge, the Internal Revenue Service (IRS) offers resources on its website, including educational materials designed to help taxpayers understand their obligations.
Additionally, the IRS’s Volunteer Income Tax Assistance (VITA) program provides free tax preparation assistance to qualifying individuals. Bruckner explains that VITA is administered in partnership with various nonprofits and organizations across the United States. It is available in every state and caters to taxpayers who generally earn $67,000 or less, those with disabilities, and limited English-speaking taxpayers.
For those interested in contributing to their communities, the IRS encourages individuals to volunteer as tax preparers for the VITA program. This initiative not only helps others navigate their tax obligations but also fosters greater financial literacy nationwide.
As the gap in tax literacy persists, addressing this issue is essential for promoting informed financial practices and encouraging civic participation among Americans.
