Consumer Misconceptions about Tax Laws: Results from a Survey in the United States

A survey of 1,131 consumers in the United States identified substantial gaps in knowledge or literacy with respect to fundamental U.S. tax law concepts of withholding and tax liability, tax brackets, tax deductions versus credits, charitable contributions, income and exclusions (gifts), and payroll/self-employment tax. Rates of misunderstanding of each concept ranged from 30% to 79%. Regression analysis suggests tax literacy was higher among males and consumers who were older, more educated, and had higher household incomes. Self-reported tax knowledge was weakly correlated with objectively measured knowledge ( r = .37, p < .001), suggesting respondents had limited ability to estimate their own literacy of tax concepts. Tax literacy was significantly, but relatively weakly correlated with a more general measure of financial literacy suggesting that tax literacy is a related, yet distinct component of a consumers’ overall financial proficiency. These findings have important implications for consumer welfare via potential impacts on everyday consumer decisions and public discourse.