The IRS was expecting millions of Americans to just scrape by today’s April 18 tax filing deadline, getting in their returns at the last minute.
While taxpayers can file for a six-month extension, moving back the deadline doesn’t make filing federal income taxes any less complicated, or time-consuming. It’s estimated that Americans spend about 11 hours working on their returns each year, and at least one filing service tasked with making the process easier is now in hot water for misleading customers.
As the US Treasury department lobbies for more funding to modernize the IRS and address a historic backlog of tax returns, other countries’ approaches offer a window into how the US could make filing easier on Americans.
Some countries file taxes for their citizens
“A look across countries illustrates what an adequately funded tax administrator can deliver to the American people,” US Treasury official Natasha Sarin wrote in a note today requesting $80 billion in long-term funding for the IRS.
At least 36 countries offer return-free filing for some taxpayers, according to the Tax Policy Center. Though systems vary by country, they typically take the filing burden off the taxpayer by withholding income from their paychecks throughout the year, or filling out citizens’ returns—partially or entirely—for them.
In Japan, for example, the country’s tax authority withholds income from taxpayers throughout the year and later sends them a postcard with a summary of their earnings, tax payments, and any refunds. In most cases, residents never have to file a return. In a number of Nordic countries, as well as Spain and Chile, tax authorities fill out returns themselves and then send them to residents for review. Spanish authorities offer the most comprehensive pre-populated form, completing the entire return for taxpayers in advance.
Providing direct assistance to taxpayers can reduce unintended errors on the part of the filer, the OECD found. It can also save time—taxpayers surveyed in Denmark and Sweden, which offer return-free filing, spent less than an hour on average on their returns, according to a 2017 Deloitte survey (pdf).
Tackling the US “free” file system
The IRS already has the information needed to help process Americans’ tax returns, and the US toyed with a return-free system as far back as 1985, under president Ronald Reagan.
But such policy proposals have been hindered by the government’s reliance on tax software preparation services such as Intuit and H&R Block, which have a vested interest in keeping tax returns complicated. Under a consortium called the Free File Alliance, these firms were previously tasked with providing free filing services to Americans. Instead, they made their services hard to access, and charged customers unnecessary filing fees. A 2013 ProPublica investigation found Intuit lobbied the US government against adopting a return-free filing system.
The Federal Trade Commission (FTC) is now suing Intuit for deceptive marketing practices regarding its free products. Neither H&R Block, nor Intuit, is currently partnering with the federal government to offer free filing services. With these private partners dropped, the IRS could rethink avenues to simplifying the tax-filing process.