Although the federal tax code affects all Americans, most adults either do not know or do not understand basic tax code concepts related to filing income taxes, according to the results of a nationwide poll released this week by the independent Tax Foundation.
For example, only one-third of those surveyed knew that the top federal income tax bracket for individuals is 37%. The remaining 70% either said that they were unsure or gave an incorrect answer.
There was also confusion about how tax brackets work. Most people (52%) surveyed did not understand that the tax rate associated with an individual’s top tax bracket only applied to the portion of income that falls within the highest bracket, not all their income.
For example, when asked how much of their income would be taxed at 22% if they were in the 22% tax bracket, only 48% knew that “just some” of their income would be taxed at that rate. Eighteen percent said they did not know and 34% incorrectly thought that all their income would be taxed at 22% if they were in the 22% tax bracket.
When asked which was more valuable: a $1,000 tax credit or a $1,000 tax deduction, 64% of respondents answered incorrectly or were unsure. Only 36% knew a tax credit is more valuable because it reduces a tax bill dollar-for-dollar.
Additionally, only 48% understood that large tax refunds were nothing to celebrate because it means too much tax was withheld from the individual’s paycheck – money that could have earned interest if it had been saved or invested.
There were also contradictions in the polling results. For example, 71% said they wanted the top bracket lowered, yet 54% said high earners should pay more.
The results of the poll underscore the need to improve “tax literacy,” said Zoe Callaway, director of education at the Tax Foundation, a Washington, DC-based thinktank.
“Tax literacy was a focal point of the poll for two reasons: Taxpayers should understand the taxes that impact their daily lives and financial decision-making, and knowledge helps improve the tax policy debate, leading to more sound tax policy,” Callaway said.
The poll results also showed general dissatisfaction with the current tax code, with two-thirds of respondents saying it was unfair and 86% saying it needed to be reformed.
The poll surveyed 2,700 U.S. taxpayers over 18 spanning the political spectrum and income distribution to determine knowledge of basic concepts and opinions of the current federal tax code. The Tax Foundation’s educational program, TaxEDU, and the Center for Federal Tax Policy conducted the poll with Public Policy Polling.
