When Social Media Drives Tax Advice

News, Influence, and Misinformation

Social media has become a popular tool to establish connections, find entertainment, and share opinions. Facebook, YouTube, Instagram, and TikTok each have over a billion active users per month. Recent surveys show that over 50% of Americans get news from social media and influencers, and around 20% of Americans do so regularly. At the same time, almost half of users acknowledge substantial false or misleading information on these platforms.

The popularity of social media personality-based news has expanded into the field of tax. However, the complexity of tax rules and the fast-paced nature of social media clips are inherently in conflict. This brief discusses recent interactions between social media and tax policies, IRS enforcement activities, and potential approaches that may benefit both taxpayers and tax administration.

Fundamental Conflicts

The Dubious Wisdom of the Crowd

Tax misinformation, online or otherwise, is not new. However, social media amplifies the spread of misinformation when users take posts at face value. It can be a powerful way to shape public opinion. When a post receives enough user support, or “likes,” that endorsement appears to validate its accuracy, regardless of whether the underlying information is correct.

Ride-Sharing Drivers — When the ride-sharing economy was burgeoning roughly a decade ago, Uber drivers were unsure how to report their federal income taxes correctly, and IRS provided limited guidance. Many tech-savvy drivers sought tax advice from internet discussion forums, such as Reddit or UberPeople, where researchers found that numerous incorrect tax recommendations were shared. They gained credibility only because many people liked or concurred with the postings.

Employee Retention Credit — Another recent example is the abuse of the Employee Retention Credit (ERC) by certain social media promoters. ERC was a pandemic-era assistance program passed by Congress in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The intent was to help workers stay on payroll. The ERC abuse was a perfect storm for scammers as people increased their time on social media during the pandemic, faced a whirlwind of policy changes, and experienced shelter-in-place orders that shut down in-person connections.

The central social media scam involved promoters falsely claiming that any business seeing a dip in revenue or facing a supply chain disruption — no matter how minor — automatically qualified for the credit, even if their operation had not been suspended by government order. The abuse also involved predatory, third-party preparation firms that convinced business owners to file large volumes of returns on their behalf, often taking a significant percentage of the claimed refund.

With the increased demand for content and the flexible standards to qualify for the credit, many scammers tended to misconstrue the eligibility requirements and induced taxpayers to apply for the ERC through online videos or posts. It also did not help that the ERC eligibility criteria changed three times after its creation in the CARES Act — each time the updated rules made eligibility more generous and applicable to more entities, including two retroactive changes for qualifications. Former IRS commissioner Danny Werfel stated the ERC “is one of the most complex credits the IRS has administered.” The numerous social media schemes led to widespread investigations, including criminal indictments.

Headline Versus Details

Taxpayers traditionally restrict discussions of their tax matters to trustworthy family members, tax attorneys, or CPAs because of privacy concerns and taxpayers’ unique situations. Social media platforms have changed this dynamic.

Tax rules are complicated, and compliance can be highly technical. Although some rules are universal, many others only apply based on specific circumstances. When influencers promote tax-related discussions in a 20-second video, only the major headlines remain, and granular details are left out. Worse, some advice may be outright incorrect.

This highlights an inherent conflict: high-level, generalized headlines are incompatible with carefully customized individual tax advice. Some influencers admit that they use these extreme examples— knowing that they do not apply to everyone — to get people’s attention and secure engagement (likes, subscriptions, or shares).

Echo Chambers

Cognitive science studies show that many people rely excessively on the first information obtained when making decisions. Social media algorithms likely intensify such anchoring effects. Once a user views or reacts to a post, social media algorithms tend to provide more content that viewers already agree with. These so-called “echo chamber” effects push content with more extreme perspectives to users.

Effects of Complexity

Fraudulent Schemes

Some social media tax advice is clearly suspicious and obviously too good to be true. Here are several ways influencers have induced taxpayers to claim improper deductions or tax benefits: 

• Claiming income taxes are voluntary.
• Writing off the full cost of a luxury vehicle, regardless of business use.
• Classifying a household pet as a “guard dog” to deduct food, grooming, and veterinary expenses as business expenses.
• Buying real estate to create losses and avoid exaggerated amounts of taxes.
• Asserting business owners can avoid taxes by registering in Delaware  or other seemingly tax-free jurisdictions.

The Plausibility of Deception

However, thanks to the highly complicated nature of tax rules, social media promoters need not commit to outright lies. Instead they can withdraw slightly from such blatantly bad tax advice by providing a plausible twist on real tax law. This is often enough to confuse taxpayers and convince them that a nonexistent tax benefit or tax law is legitimate. This tactic is particularly effective when applied to proposed tax rules. There is an increase in fake news postings during congressional debates on major legislative proposals, when discussions are abundant and information is constantly changing.

Legitimate confusion often arises from the dense nature of enacted and proposed tax laws. Some posts involve simple misinterpretation of proposed tax policies, while others may blend current laws with pending changes. Critically, influencers who lack tax or legal expertise rarely update their postings or indicate that the information is subject to change or open to interpretation.

The Cost of Complexity

All taxpayers agree that the U.S. tax system is complex. A recent study shows that Americans spent over 7.9 billion hours in tax reporting in 2024, which translates to $413 billion in lost productivity. Adding this amount to the out-of-pocket costs of $133 billion, the total cost is about $546 billion annually to report and file tax returns.

The tax code continues to grow in size and scope. The One Big Beautiful Bill (OBBB) Act, which became law on July 4, is 870 pages long and touches many aspects of federal programs and resources. While the forthcoming regulations will clarify the law’s implementation, they will also add more details. In recent years, revenue has become the most discussed criterion when designing and negotiating tax policies, and simplicity has not been a priority. As researchers point out, technical tax rules are vulnerable to misunderstanding and abuse, and policymakers should carefully weigh the cost of tax complexity when enacting new laws. New tax rules that leave room for confusion, the researchers argue, will undoubtedly lead to widespread dissemination of false information on social media, both intentionally and unintentionally.

A recent example is the “no tax on tips” provision included in the OBBB Act. Certain occupations qualify for tip income deductions of up to $25,000 annually through 2028. The Treasury recently issued draft guidance on approximately 70 types of jobs that would be eligible. The list ranges from traditionally tip-based jobs such as bartenders, waiters, and gambling dealers to less common ones, including dog walkers, plumbers, and social media influencers. Some practitioners questioned the reasonableness of including specific jobs, while others wondered if these occupations are defined clearly enough and will not cause confusion.

The Joint Committee on Taxation estimates that this policy will cost $32 billion over 10 years. However, practitioners expect that behavioral responses — such as employers and workers changing their compensation structure to qualify for the tax deduction, or unqualified workers altering their job descriptions to be included — will raise the costs.

The 2025 Dirty Dozen

Each year, the IRS publishes a list of 12 common tax scams to caution taxpayers and tax professionals about ongoing unlawful schemes. Over the last decade, complicated tax planning schemes, including syndicated conservation easements, charitable remainder annuity trusts (CRATs), Maltese individual retirement accounts, monetized installment sales, foreign captive insurance, and pandemic-era refund frauds, have been frequently mentioned. In 2025, none of these common scams is on the list. Instead, half of the scams are associated with social media.

The IRS has explicitly labeled “bad social media advice” as a growing concern because it not only misleads innocent taxpayers but may also prompt identity theft. Over the last three years, the IRS has assessed $162 million in penalties on roughly 32,000 returns over false tax credit claims tied to social media. On average, it amounts to $5,000 in penalties per return. The issue is now on the IRS’ agenda, and the agency will continue to carry out enforcement actions.

The agency has provided the following examples:

False Fuel Tax Credit Claims — This narrowly targeted credit for federal tax paid on fuels was meant to benefit off-highway businesses and farmers, and most taxpayers do not qualify. However, many unscrupulous return preparers and social media promoters have erroneously led taxpayers to believe they are eligible for the credit (Form 4136).

Credits for Sick Leave and Family Leave — This credit applied only to self-employed individuals in 2020 and 2021, during the pandemic years (Form 7202). However, many applicants who applied did not meet the eligibility criteria because they were not self-employed, and many also filed for the tax years other than 2020 and 2021. This misapplication is an example of details conveniently left out by social media personalities when promoting tax credits.

Some promoters also advocate for a self-employment tax credit, which does not exist. They are likely referring to the sick and family leave credits mentioned above. A related scam on household employment taxes, abuses the Form 1040, Schedule H provisions — intended for taxpayers who pay actual household employees above a certain threshold — encourages taxpayers to create a fictional household employee and claim refunds on fake sick leave and family leave credits for wages that were not paid.

Overstated Withholding Scam— Some social media promoters encouraged people to file W-2 and Form 1099 documents with false income and withholding information. They often listed nonexistent employers who supposedly paid these large salaries and withholding significant sums. Taxpayers would then file refund requests based on the fabricated withholdings. However, the IRS stated that it will not issue refunds until the agency verifies the wages or income reported on the tax returns.

The (Non-Fake) Good News

No taxpayer wants to pay more taxes than necessary, and many engage in legal tax avoidance strategies. Still, the majority of taxpayers do file honestly. Over the past two decades, despite the increased number of tax returns filed, the voluntary compliance rate (VCR) — the share of total taxes that taxpayers pay voluntarily and on time — has remained between 83% and 85%. After accounting for taxes collected through IRS audits and enforcement actions, the net compliance rate (NCR) rises slightly, ranging from 86% to 87%.

Researchers suggest that the most effective way to stop the spread of tax misinformation is to address the issue at the source: by crafting well-designed, clearly stated tax policies. However, this may be hard to accomplish when tax laws are already complicated, and policies are often rushed through Congress.

The secondary defense is for the IRS to get ahead of the social media influencers by providing straightforward information, with constant reminders. However, the IRS faces certain restrictions and cannot act as freely as influencers. For instance, it cannot target individuals who offer bad advice, is required to use proper, neutral language, and cannot comment on proprietary tax strategies. Despite these limitations, the agency can still take meaningful steps to counter misinformation, by explaining specific tax provisions or debunking common myths. To accomplish this, both the format and the messaging frequency are essential. Content delivered as short texts, accompanied by pictures or infographics, will help capture attention, increase the story’s credibility, and raise the possibility of sharing.

The Bad News

A further issue is that the IRS lost about a quarter of its workforce between January and May 2025. Almost one-third of these discharged employees were revenue agents or tax examiners, meaning they were directly involved in reviewing and processing tax returns. Other employees in supporting functions such as IT or administrative assistance that indirectly facilitate tax return reviews were also removed.

The reduction in the federal workforce has also affected nonenforcement functional areas. The Trump administration announced plans to more than 110 taxpayer assistance centers in February. After concerns were voiced about the impending 2024 tax filing season, the IRS got an exemption to keep the centers operating. The plans to close nine centers were discussed in early September, and again encountered pushback. Reduced taxpayer assistance results in fewer answered tax questions.

The proposed 2026 budget also includes a 23% cut in IRS funding from current spending levels. This reduction could mean that during the 2026 filing season, IRS personnel will only be able to answer one in six (16%) phone calls, severely limiting taxpayer assistance. The ongoing (November 2025) federal government shutdown and the associated delays and layoffs will further impact the agency’s workload.

The Way Forward

It is an undeniable and growing trend: Americans will continue to receive tax news from social media. The problem is that tax rules and codes are inherently complicated — their application always hinges on a taxpayer’s specific circumstances — and that complexity will only increase.

Social media clips are designed to be short, attention-grabbing, and entertaining: None of these descriptions apply to tax. Taxpayers do not need to avoid all social media-based tax news, but they need to bear in mind the limitations of the medium. If a post suggests a particular tax benefit applies, the taxpayer should always research and confirm the information. It is never wise to file a tax return based solely on a 20-second headline.

Researchers suggest the best way to address social media misinformation is to start at the front end: Lawmakers who enact properly designed tax policies can avoid room for rumors and confusion. At the back end — administration and enforcement — the increase in bad social media advice is a growing concern and the IRS has been taking action to combat misleading, sometimes aggressive, tax advice.

This publication was produced on behalf of Rice University’s Baker Institute for Public Policy. Wherever feasible, the material was reviewed by external experts prior to its release. Any errors are the responsibility of the author(s) alone.

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author(s) and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s) and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.