Pursuant to a congressional request, GAO reviewed tax administration issues related to the growth of nonwage income, focusing on the: (1) primary sources of such income; (2) impact of nonwage income tax delinquencies on the Internal Revenue Service's (IRS) accounts receivable; and (3) potential options for improving the timely payment of taxes on nonwage income.

GAO found that: (1) from 1970 to 1992, individuals' nonwage income increased from 16.7 percent to 23.4 percent; (2) pensions, interest, self-employment, capital gains, dividends, and partnerships accounted for 91.6 percent of all nonwage income reported for 1992; (3) individual tax returns showing only nonwage income increased from about 10 percent to over 15 percent in 1992; (4) the proportion of the taxpayer population reporting nonwage income will continue to increase as the population ages because pension income is the largest and fastest growing source of nonwage income; (5) taxpayers whose income derives mainly from nonwage sources are more likely to have problems paying their income taxes; (6) these taxpayers accounted for 74 percent of the $79.2 billion in delinquent taxes owed by individuals in fiscal year 1993; (7) taxpayers with self-employment, interest, and dividend income accounted for about two-thirds of the nonwage income included in the IRS inventory of tax debts; and (8) options for improving timely tax payments on nonwage income include expanding withholding to more nonwage income sources, increasing taxpayer awareness of tax payment responsibilities for nonwage income, and modifying the estimated tax payment system.

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