> Does the IRS actually know what everyone owes? I know it's true for W-2 employees, but what about everyone else? Not quite. The IRS knows the income that is

> Does the IRS actually know what everyone owes? I know it's true for W-2 employees, but what about everyone else? Not quite. The IRS knows the income that is reported, and the taxes you have paid. It doesn't know which credits and deductions you qualify for. It can guess based on your previous returns, but it isn't accurate and needs to be updated annually. Once you provide your credits and deductions, the IRS can calculate what your tax liability should be vs what you actually paid.