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Nobody wants to get audited. Read on to see if your income might increase your chances.
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At this point, a lot of people have finished working on their 2022 taxes and are ready to sit back and wait for their refunds to arrive. But just because you’ve submitted your return doesn’t mean your refund will land in your checking account in a few weeks and that’ll be it. If the IRS has questions about your tax return, or if something on it looks suspicious, then you may end up receiving an audit notice in the mail that you’ll need to address before your tax refund can be processed.
Now, one thing you really should know is that tax audits aren’t necessarily the scary thing you might expect them to be. When the IRS audits a tax return, often, all the agency is doing is looking for more information. You may, for example, be asked to supply proof of a deduction you claimed on your tax return. Submit a copy of a receipt or the right documentation, and the matter should be closed.
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But still, most tax-filers would rather not have to go through the audit process. However, if your income falls into a certain range, your chances of getting audited may be higher.
Does your income increase your audit risk?
Generally, tax-filers with very high incomes — we’re talking multi-millionaires — have a higher chance of getting audited than someone with an average income. But it might surprise you to learn that a low income could also increase your audit risk.
Financial expert Graham Stephan tweeted, “The stunning fact is that if you make under $25,000 a year, your chances of being audited by the IRS are about five times higher than everyone else.” He then went out to say that the rate of audits among the lowest income wage earners was 13 per 1,000 returns for the 2021 tax year. For everyone else, it was 2.6 per 1,000 returns.
Why might a low income increase your audit risk? In some cases, the IRS might be suspicious of the fact that you’re getting by on as little income as you claim. Also, low-income filers are often eligible for the Earned Income Tax Credit, which is a desirable one to claim because it happens to be fully refundable.
Most tax credits will only reduce your tax liability down to $0. But a refundable credit will pay you the amount you’re claiming, even if you don’t owe the IRS any money. Because low-income filers are more likely to claim this credit, which is associated with relatively high instances of fraud, it could explain why audit rates are higher for those not earning all that much.
How to decrease your chances of getting audited
Although you don’t need to lose sleep over the idea of a tax audit, one way to potentially minimize your chances of that happening is to be honest on your tax return. Report all of your income and only claim the credits and deductions you’re truly eligible for.
Also, make sure you have proof of the deductions you’re claiming when you file a return. That may not stop you from getting audited — but it might make the process of responding to an IRS audit letter a lot easier and smoother.
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