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Tax Gap

The Tax Gap is the difference between what taxpayers owe and what they pay.

People who study the tax gap commonly define it by the following three components:

  • Those who do not file tax returns. (Approximately 10% of the tax gap)
  • Those who inaccurately report income on their tax returns. (Approximately 80% of the tax gap)
  • Those who report their income correctly, but do not pay all of the tax they report owing. (Approximately 10% of the tax gap)

Although the tax gap is difficult to measure, our estimates of the size of the California tax gap are based on research conducted by the Internal Revenue Service (IRS). The most recent IRS report estimated the federal tax gap to be about $450 billion. Based on this, we estimated the California tax gap to be $10 billion in 2010 and due to the growth in the economy, we now estimate the California tax gap to be $20-$25 billion in 2018.

Tax Gap Components. 80% due to underreporting or overdeducting. 10% each due to underpayment or not filing.

Current activities

We take a comprehensive approach to address the tax gap by using strategic planning, technology, education and outreach, effective enforcement, and partnerships with other state agencies.
Below are some of the efforts we are taking to reduce the tax gap:

  • Increase our compliance efforts through better use of existing data.
  • Modernize or replace our old tax systems to better utilize enterprise data.
  • Partner with other government agencies to enhance compliance efforts.
  • Educate taxpayers about their obligations to report tax information accurately and pay taxes timely.
  • Provide free filing assistance through the Voluntary Income Tax Assistance program to help taxpayers file their tax returns accurately.
  • Work with software companies to help taxpayers file their tax returns accurately.
  • Develop and update our tax forms, publications, notices, and correspondences to help taxpayers better understand our tax information and filing requirements.

Why should you help?

Tax collection contributes to 75% of the state's general fund which helps provide critical services to our State including funding for items like schools, police, fire, medical, parks, and transportation. Everyone contributing their tax obligation takes burden off those taxpayers who ensure they accurately file and pay their taxes, and allows for lower tax rates and fees for all of us. It is a huge responsibility to be a member of our California community, a good neighbor, and a contributor to ensure our critical services, that we all rely on, remain available. Doing your part helps everyone!

Your tax dollars are used to fund services important in california, such as Police, Fire Department, Education and Transportation. Your income tax dollars provide over 75% of the state's Genernal Fund. Many California state-funded services are directly related to your mission. To help taxpayers file timely, accurate tax returns and pay the correct amount of tax due. For online services that make filing and paying your taxes esier to go

How can you help?

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Last Updated: 06.29.2018


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