Filing taxes is one of the most stressful things we have to do every year. Now that you're almost certainly on the other side, you're likely breathing a sigh of relief and putting the ordeal out of your mind until next year's tax season. But that calm can quickly be disrupted by a sudden letter from the Internal Revenue Service (IRS) informing you that you've been selected for an audit. Wondering how worried you should be about that possibility? IRS data can actually tell us quite a bit about how likely you are to be audited.
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As the IRS explains on its website, an audit is the "review [or] examination of an organization's or individual's accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct."
This is a real concern for many: A 2021 survey from the IRS found that 60 percent of taxpayers said the fear of an audit is a major reason for being honest on their tax returns.
Worries may be even more widespread now, after the IRS vowed that it would start increasing the number of audits it conducts on high-income earners with funding from the Inflation Reduction Act.
"The nation relies on the IRS to collect funding for every critical government mission—from keeping our skies safe, our food safe and our homeland safe. It's critical that the agency addresses fundamental gaps in tax compliance that have grown during the last decade," IRS Commissioner Danny Werfel said in a statement at the time.
Werfel continued, "There is a sea change taking place at the IRS in every aspect of our operations. Anchored by a deep respect for taxpayer rights, the IRS is deploying new resources towards cutting-edge technology to improve our visibility on where the wealthy shield their income and focus staff attention on the areas of greatest abuse. We will increase our compliance efforts on those posing the greatest risk to our nation's tax system, whether it's the wealthy looking to dodge paying their fair share or promoters aggressively peddling abusive schemes. These steps are critical for the future of the nation's tax system."
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But how worried should you be if you're not ultra-wealthy? Probably not very.
The latest data available from the IRS indicates that your chances of getting audited aren't all that high. For the 2012 tax year, only 0.8 percent of individual income tax returns were selected for an audit, according to the IRS 2022 Data Book. That rate has fallen further since, with just 0.2 percent of individual income tax returns getting audited in total for the 2020 tax year.
Your likelihood might be a little lower or higher depending on your reported income. Those making $10 million or more are the most likely to be audited, as 2.4 percent of these returns faced an audit in 2020.
Based on income, the next highest are those making between $5 million and $9.9 million, at a rate of 0.7. Taxpayers who made between $500,000 to $999,999, and $1 million to $4.9 million, had the same likelihood of being audited: 0.4 percent.
But if you reported an income of $1 to under $25,000 in 2020, your chances of being audited were also 0.4 percent. Meanwhile, those who made between $25,000 to $49,999, or $200,000 to $499,999, were both audited at a rate of 0.2 percent that year.
Finally, those falling in the middle had the lowest chance of being audited. If your income fell within one of three groups—$50,000 to $74,999; $75,000 to $99,999; or $100,000 to $199,999—your likelihood of being selected for an audit in 2020 was just 0.1 percent.
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Reported income isn't the only thing that factors into how likely you are to be audited, however. Following those making $10 million or more, the second most likely group to get audited in 2020 were those who claimed the Earned Income Tax Credit (EITC).
The EITC is usually used to "help low- to moderate-income workers and families get a tax break" by reducing the taxes they owe or increasing their refund, according to the IRS. To legally claim this credit, you have to meet several specific qualifications.
But eligibility rules for the EITC have been called "complicated" by the National Taxpayer Advocate Service (TAS), which may explain the higher audit rate. The IRS states on its website that when your return is audited for an EITC claim, it may be because your child doesn't qualify or another person has claimed the same child.
There are also several more errors that are commonly made with the EITC, which the IRS says are important for taxpayers to be aware of so they can avoid them and potentially avoid an audit, too.
"You are responsible for what’s on your tax return even when someone else prepares it for you," the agency cautions.
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