Third-party tax reporting affects nearly all taxpayers—often without their realizing it. Each year, banks, employers, payment apps, and other intermediaries send almost 4.5 billion forms to the Internal Revenue Service (IRS) containing sensitive financial data.
Over the past few decades, the scale of this reporting has expanded dramatically. Advances in the IRS’s digitization efforts and increasing tax code complexity have driven a surge in the number of returns from four per person in 1995 to thirteen per person in 2024. While these reports are intended to improve tax compliance, their rapid expansion raises concerns about taxpayer privacy and the IRS’s ability to manage this inflow of information.
Third-Party Tax Reporting Has Proliferated in Recent Years
Table 1 shows the volume of total third-party information returns and the growth in e-filing of these forms, starting in 1995:
Third Party Information Returns Submitted to the IRS: 1995–2024 | ||||
Total Number | Electronic | Total Returns per Person | Electronic Information Returns per Person | |
1995 | 1,054,000,000 | n/a | 4 | n/a |
1996 | 1,070,000,000 | n/a | 4 | n/a |
1997 | 1,116,000,000 | n/a | 4.1 | n/a |
1998 | 1,153,000,000 | n/a | 4.2 | n/a |
1999 | 1,253,000,000 | n/a | 4.5 | n/a |
2000 | 1,341,000,000 | n/a | 4.8 | n/a |
2001 | 1,484,000,000 | n/a | 5.2 | n/a |
2002 | 1,423,000,000 | n/a | 4.9 | n/a |
2003 | 1,313,000,000 | n/a | 4.5 | n/a |
2004 | 1,390,000,000 | 485,000,000 | 4.7 | 1.7 |
2005 | 1,487,000,000 | 685,000,000 | 5 | 2.3 |
2006 | 1,561,000,000 | 847,000,000 | 5.2 | 2.8 |
2007 | 1,825,000,000 | 1,170,000,000 | 6.1 | 3.9 |
2008 | 1,883,000,000 | 1,360,000,000 | 6.2 | 4.5 |
2009 | 3,024,000,000 | 2,677,000,000 | 9.9 | 8.7 |
2010 | 2,687,000,000 | 2,363,000,000 | 8.7 | 7.6 |
2011 | 1,801,000,000 | 1,548,000,000 | 5.8 | 5 |
2012 | 2,237,000,000 | 1,986,000,000 | 7.1 | 6.3 |
2013 | 2,085,000,000 | 1,830,000,000 | 6.6 | 5.8 |
2014 | 2,284,000,000 | 1,957,000,000 | 7.2 | 6.2 |
2015 | 2,606,000,000 | 2,272,000,000 | 8.1 | 7.1 |
2016 | 2,999,000,000 | 2,648,000,000 | 9.3 | 8.2 |
2017 | 3,563,000,000 | 3,206,000,000 | 11 | 9.9 |
2018 | 2,755,000,000 | 2,394,000,000 | 8.4 | 7.3 |
2019 | 3,503,000,000 | 3,140,000,000 | 10.7 | 9.6 |
2020 | 3,409,000,000 | 3,066,000,000 | 10.3 | 9.3 |
2021 | 4,741,000,000 | 4,415,000,000 | 14.3 | 13.3 |
2022 | 5,452,000,000 | 5,086,000,000 | 16.4 | 15.3 |
2023 | 5,419,000,000 | 5,026,000,000 | 16.1 | 14.9 |
2024 | 4,568,000,000 | 4,290,000,000 | 13.4 | 12.6 |
Source: the annual IRS Data Book, Table 24 [formerly 22], available here, and the U.S. Census Bureau. Total and Electronic returns rounded to the nearest million. | ||||
The above table contains the amount of third-party information returns submitted to the IRS each year, starting in 1995 and ending in 2024, the most recent year for which data is available.
The table includes all forms and series relevant to the study of IRS information return proliferation, including the 1042–S (income paid to foreigners), the 1098 (common deductions such as mortgage interest, student loan interest, and tuition), the 1099 (income like interest and dividend distributions), wage and tax statements filed by employers, forms for certain gambling winnings, and forms for individuals receiving income from estates or trusts.
Combined, these forms are a large and growing tax compliance burden for taxpayers and businesses. Though recent improvements in digitization and legislative changes (discussed below) may ease this growth, the scope of third-party reporting is vast and expanding. This expansion is driven by recent trends:
As people use more and more intermediaries (e.g., banks, payment processors, servicers, brokerages, etc.) to complete their financial transactions, the number of third parties with reporting obligations expands.
It is increasingly common for taxpayers to achieve their financial goals through several financial instruments, such as 401(k), IRA, and HSA accounts; education savings plans; and credit instruments. This further increases the number of IRS information returns.
The emergence of online marketplaces, payment apps, and gig platforms as staples of everyday life has introduced entirely new categories of reporters.
Over time, policymakers have steadily expanded reporting requirements through laws, such as the American Rescue Plan Act’s (ARPA) expansion of 1099-K reporting requirements (which were repealed in OBBBA), and the Infrastructure Investment and Jobs Act’s increased mandates for digital asset reporting, intended as a way to boost tax compliance.
ARPA’s 1099-K requirements, which would have reduced the transaction income reporting threshold from $20,000 to $600, were repealed by OBBBA. This change was a major bullet dodged, as some estimate it would have generated more information returns than there are people on the planet. Even the temporary, non-statutory $5,000 threshold issued before ARPA’s change was repealed generated 44 million new returns, far above the 16 million before.
Rapid Growth in Tax Compliance Data Is Straining IRS Capacity and Data Security
The cumulative effect of the trends is a dramatic increase in the volume of sensitive financial data the IRS must store, process, and protect. This expansion creates administrative and security risks:
The Treasury Inspector General for Tax Administration (TIGTA) has continuously warned that security risks persist in the IRS’s case management system, suggesting that activity logs must be monitored better to see who is accessing data, and inactive accounts need to be deactivated more rapidly to restrict unauthorized access.
Recent high profile examples of data breaches include the 2019 leak of politically-sensitive tax data to the New York Times and ProPublica by an IRS contractor, proving that expanded data expands personal risks. The IRS also sent incorrect information to the Department of Education that affected over 7 million student aid applications, posted the personal information of 120,000 taxpayers on its website, and improperly divulged data to the Department of Homeland Security as part of an interagency shared agreement with the DHS meant to only include home addresses.
The IRS delayed implementation of ARPA’s dramatically lower 1099-K threshold because of taxpayer confusion with the new new standard and because the IRS was “not ready to administer in a way that provides taxpayers the clarity they need.”
Conclusion: Compliance Policy Must Respect Capacity and Privacy
One way lawmakers have sought to boost tax compliance is through expanded third-party information reporting from private institutions to the IRS. Some of these efforts, including ARPA’s 1099-K changes, strained the Service’s capacity to process an influx of new forms, while the growing volume of financial data flowing into IRS systems raises persistent concerns about privacy and data security.
Those concerns helped drive the rollback of the 1099-K expansion and blocked an even more sweeping attempt to vacuum up financial data on millions of Americans. A 2021 proposal from the Biden Administration would have required financial institutions to report on any account with annual gross inflows and outflows of just $600. At that threshold, routine household deposits and bill payments would have triggered federal reporting. The proposal was ultimately withdrawn after bipartisan backlash, but it demonstrated how compliance initiatives can quickly evolve into broad data-collection regimes.
Efforts to improve compliance must be balanced against the IRS’s administrative limits and paired with strong safeguards for taxpayer information. Protecting privacy is not incidental to enforcement—it is essential to maintaining trust in the tax system.