Why doesn’t the IRS just send me a bill for the taxes I owe based on the info they already have?
So it's time to file taxes in the United States and it occurred to me that I am required to provide a lot of information that the government already knows. For instance, I have to provide the contents of my W-2 form, but my employer already sent the Internal Revenue Service a copy of that document. Indeed, if I don't accurately report my income, the IRS will know because it differs from the information that they already have.
Why doesn't the IRS just save me the trouble of submitting information it already has and just send me a "bill" telling me what I owe (based on the information it already has)?
Obviously, there is some information I would still need to fill out, like self-employment income. But wouldn't it be easier, and save more money for everyone, to just have the IRS tell me the information it knows and, if I don't have any corrections or additional information that I need to report, just ask me to write a check and send it back?
EDIT: I'm interested in the political rationale for the IRS not doing this. As some commenters have noted, countries in Europe already have a system very similar to this where the IRS-equivalent discloses their known information and the individual fills in unknown information (such as self-employment income), so I am aware that it is technically feasible.
I see three close votes because *"This question does not appear to be about governments, policies and political processes within the scope defined in the help center."* Could I please have some clarification about why this is not on-topic, given that the IRS is a government body? Is there some way that I could improve the question so that it would be on-topic?
@Thunderforge: The clarification can be found, as already indicated in the close reason, in the help centre. Just because something is related to “government” in the US meaning of the word doesn’t mean it’s about politics. (In fact, however, one of the answers so far is a “political” answer.)
Comments deleted. Please don't try to answer the question with comments. If you would like to answer, please write a real answer.
@dalearn - the highest voted answers already show the political side of this question, so my suggestion is to leave the question here.
@Thunderforge - for me the question is perfectly valid. However, you can add that you are interested in the political aspect: multiple comments and answers indicate that the process is much less painful in other places such Austria or EU countries, so this suggests a political difference, not a technical (economical) one. This should clarify its connections to Politics.SE and hopefully prevent it from being closed (currently 3/5 close votes).
@Alexei Thanks for the suggestion; I've edited to clarify that I'm looking specifically for the political differences, since the presence of a system in European countries suggests that it's not a technical issue.
I had to delete some more comments. Everyone, **please remember what question comments are for**. They should be used for asking the question author for clarification, providing constructive criticism for the question or otherwise communication with the author. They are not meant to post information which belongs into an answer.
Several ways have been found to do this in other countries, as noted (even Italy!). To answer the question fully, one would need to know: how much relevant data IRS really has (e.g. do states share everything?); how much citizens know about it (does the federal government *want* you to know they know such things?); how better or worse that data is, on average, than what people enter (e.g. does IRS know about deductible expenses more than people usually bother entering? does IRS want to reduce taxation income?).
The question supposes that a significant factor is political. While there are politics involved (e.g., the tax preparation companies lobbying to keep the tax code complex), those are dwarfed by the practical issues of how the taxing authorities would acquire all the relevant information, and how to handle the exceptions for the taxpayers for whom the relevant information is not available except from the taxpayers themselves.
This isn't an answer, since it doesn't provide a rationale for the political decisions. But seeing how the European examples work, it stands to reason that such a system could not possibly work in the US given the resistance to something like a national ID. To put it into perspective, all the European countries that I am aware of have some kind of ID number tied to you as a person _and_ tax payer or to you as a tax payer only. This would mean every US citizen would have to get such a unique ID number that is valid across state lines - when they don't even want national ID cards ...
It's certainly possible, and plans have previously been made to do it, but then what would happen to the tax preparation industry?
That may seem like a silly question, but for the capitalist tax prep industry, automating away a large portion of their industry is a huge problem, so naturally they would lobby against it.
ProPublica has an article from last year that covers the issue.
Here’s how preparing your taxes could work: You sit down, review a prefilled filing from the government. If it’s accurate, you sign it. If it’s not, you fix it or ignore it altogether and prepare your return yourself. It’s your choice. You might not have to pay for an accountant, or fiddle for hours with complex software. It could all be over in minutes.
It’s already like that in parts of Europe. And it would not be particularly difficult to give U.S. taxpayers the same option. After all, the government already gets earnings information from employers.
Intuit spent more than $2 million lobbying last year, much of it spent on legislation that would permanently bar the government from offering taxpayers prefilled returns. H&R Block spent $3 million, also directing some of their efforts towards the bill. Among the 60 co-sponsors of the bipartisan bill: then congressman and now Health and Human Services Secretary Tom Price.
The bill, called the Free File Act of 2016, looks on the surface to be consumer-friendly. It makes permanent a public-private partnership in which 13 private tax preparation companies — called the “Free File Alliance” — have offered free online tax filings to lower- and middle-income families. The Free File Alliance include both Intuit and H&R Block.
But the legislation would also permanently bar the IRS from offering its own free alternative.
Intuit has repeatedly warned investors about the prospect of government-prepared returns. “We anticipate that governmental encroachment at both the federal and state levels may present a continued competitive threat to our business for the foreseeable future,” Intuit said in its latest corporate filings.
Sen. Elizabeth Warren, D-Mass., offered a bill last year that would have actually allowed the government to start offering prefill tax returns. While Intuit did not lobby against Warren’s bill — presumably because the legislation had little chance of success — tax giant H&R Block did. (H&R Block did not respond to a request for comment.)
Neither Warren’s bill nor the Free File Act made it out of committee.
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`It’s already like that in parts of Europe.` - I can confirm. I forgot to submit a tax-return one year while living in Estonia. The form submitted itself and I missed out on a €20 deduction. The next year, I took the 5 minutes to actually sign in, check it, and submit it.
The article is presupposes several disputable claims, e.g., "it would not be particularly difficult to give U.S. taxpayers the same option." In many cases, it would be tremendously difficult for the IRS to get all the relevant information from someone other than the taxpayer. The fundamental problem here is not political, it's feasibility. The fact that it's done in other countries suggests to me that their tax systems require far fewer inputs and/or those countries track a scary amount of information about their citizens.
@AdrianMcCarthy It would be incredibly difficult for the IRS to generate an optimal tax return, but very easy to generate a tax return based solely on 1099s and W-2s with the standard deduction and EIC. For the majority of people that's good enough. If that's not good enough for you, hire a tax professional. It's the same way in those countries.
Also, if your employer is shady and sends out a tax form that says they charged you 10k in taxes, and sent 8 to the IRS, what's to stop them from just using that, and pocketing the money (other than laws)?
@Anoplexian Why would anything other than laws stop it? What's stopping citizens from filing bogus tax reports today?
@Anoplexian The idea here is the *option* for having your taxes do themselves, not a requirement. If you have special circumstances like those Adrian raises, or if you have serious suspicions about your employer, you can always file yourself. Even if you don’t, you would still have all the paperwork available to double-check things if you like.
@Anoplexian the idea here is that the *government* sends you the tax form, not your employer. You (if so inclined) can verify what the government sends vs the W-2 or equivalent you get from your employer. If the government form says you paid $8K in taxes but your employer's W-2 shows you paid $10K, you flag that to the IRS.