For a lot of Americans making your tax returns isn’t that difficult. It’s merely data entry.
The process of filing your taxes is mainly rummaging through the many Internal Revenue
Service forms you receive by mail. You will receive W-2s that list your earnings, 1099s that show
various income, such as from the occasional gig, 1098s that show tuition and mortgage interest,
and so on.
However, here’s the catch with the forms they’re available to the IRS has them too. For a lot of
people, they’re the IRS is able to access all the information they need to calculate their tax
liabilities. provide taxpayers with a tax return that is filled out and ask them to fill it out and return
it to the IRS when everything appears to be in order.
This isn’t a mere speculation suggestion. Countries such as Denmark, Belgium, Estonia, Chile,
and Spain already offer “pre-populated returns” to their citizens. Furthermore, a new study
estimates that 41% of American households — or 62 million tax-filing units can get their tax
returns processed in this manner, with no additional intervention required.
Lakhs of million of unneeded returns
The paper is written by 4 economists, Lucas Goodman and Andrew Whitten from the Treasury
Department’s Office of Tax Analysis, Bruce Sacerdote of Dartmouth, and Katherine Lim of the
Minneapolis Fed. The authors who work at the Treasury help explain the data that the paper
utilizes which is a random and representative sample of tax returns that were filed in the year 2019. The IRS has strict rules about who is eligible to access this kind of tax information in such
a fine-grained way (it must be used for the purpose of tax policy) However, it’s a treasure trove
In this instance the IRS data allowed the authors to create “pre-populated returns” for taxpayers
by using data the IRS already had and then comparing the returns to those submitted by
taxpayers. If they’re identical, it indicates that a pre-populated tax return policy is able to workfor the person who is applying.
“A pre-populated return is deemed successful if its calculated tax liability is approximately equal
to the tax liability actually reported on the 2019 tax return,” the authors write. This was just one
of the approaches they utilized to sort over the IRS returns, looking for any issues which could
hinder an already-populated return from being properly compiled. This method was more likely
to yield greater estimates of how many returns could be compiled in a way that was automated.
The previous, less cautious approach showed an average of 41 percent of tax returns which
comprise more than 62 million tax units could be prepared accurately for IRS IRS in this way. (A
taxing unit can be a single individual or a family with a single parent or a couple who are married
and their children and so on. — whoever is represented on your tax returns.) The less
conservative way of including everyone who isn’t in a situation that could prevent the automatic
filing of tax returns is the 73 million return which is 48 percent.
Pre-populated tax returns may also be helpful to those who aren’t currently filing taxes. In the
US most people do not have to file income tax returns. This is usually due to the fact that they
earn less amount of money to satisfy the requirement or the money they earn comes from an
exempt source such as Social Security. However, those who aren’t exempt from filing a return
often be benefited from filing a tax return due to benefits such as the earned income tax and tax
credits for children. They are tax-deductible which means that you don’t need to have an income
tax liability that is favorable to be eligible for them. The earned income tax credit (EITC)
specifically is intended to be given to those with low incomes but aren’t earning enough to be
liable for income tax.
However, 22 % of taxpayers who qualify aren’t eligible for the EITC in the normal year.
According to an estimate that’s about two-thirds of the people who don’t be eligible because
they weren’t able to file a tax return. The bundled nature of the social programs that have
complicated tax codes creates significant hardship for people who are less wealthy Americans
who want to use these programs.
The authors of the paper on automatic filing calculated the number of non-filers who can benefit
from tax advantages in the case of an automatic filing system. They believe the following: 7.2
million tax units that don’t have to file are due refunds, which is about $411 for each. They are
more likely to receive their refunds through the pre-populated filing system.
Tax returns are no longer needed … to everyone?
For the millions of households that are already-populated tax filing is a possibility, this could be a
significant leap in the right direction. However, 41-47 percent of households aren’t the majority.
And in an ideal world, the remaining 53-59 percent of tax authorities would gain from an
arrangement similar to this, too. What is the obstacle that hinders them?
The paper’s appendix table, A2, calculates the percentage of returns that have different
characteristics that hinder an already-populated tax return from working. The most frequent, and
affecting 16.2 percent of return can be found in schedule C or self-employment income. The
estimates of people have different values of their earnings from self-employment and odd jobs
than what the 1099 forms that are sent to the IRS shows. There could be significant costs for
business or employment that did not trigger the 1099 form, which could alter their tax
The second most frequent one, which accounts for 10.9 percent of tax returns, is the itemized
deduction. They’ve become less frequent because the deduction standard was increased with
the Trump tax bill of 2017 however, nearly every person who item sizes is eligible for the
charitable deduction or taxpayer’s state tax exemption. Both of them rely on information that’s
not always provided to the IRS and therefore can’t be included on pre-populated tax returns.
Both are difficult issues to solve. In particular, due to the growth of the “gig economy” employers
like Uber, Lyft, and DoorDash which issue 1099s to employees and treat them who are
contractors increasingly people with low incomes are dependent on self-employment income.
Discrepancies could arise, making automatic filing impossible. It’s possible to solve the issue of
itemized deductions by eliminating deductions for itemized deductions but I’m not sure the
taxpayers whose tax burdens you simplify be grateful for the change.
Other issues could be more easily fixed. The majority of taxpayers earned income that was not
the W-2 form they received and better reporting requirements for wage income for companies
could help with this. It was difficult to determine what percentage of pension earnings is
tax-deductible also have been a source of confusion that a more simple pension tax system
could address. As a taxpayer who volunteers I’ve seen pension-related issues surface often and
our current system is extremely complicated. I am a sucker for the thought of taxation and
however, learning the “simplified method” to tax pensions caused me to wish to go to the grave.
However, even in the case that “only” two out of every five tax returns are completed by the IRS
in a way that is automatic It’s worth asking Why aren’t these returns being completed? Even in
the case that “only” 62 million households could benefit, it will nevertheless save a lot of anxiety
and time each year, and help make tax season go more efficiently.
According to the IRS estimate, the typical tax filer for non-business filers has a working day of
nine hours filling out their 1040. Even if we assume that returns that can be filled automatically
are simpler and take half the time this amounts to 279 million hours which is almost three
thousand days of your life that would not be wasted if 62 million filers could file their tax returns.