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The IRS may have the ability to automate nearly half of tax filings, according to a National Bureau of Economic Research working paper.
The agency could correctly auto-fill about 62 million to 73 million returns with the information it already has, covering 41% to 48% of taxpayers, researchers from the U.S. Department of the Treasury, Minneapolis Federal Reserve and Dartmouth found. Middle School.
“Our results suggest that pre-populated returns would be accurate for a substantial portion of US taxpayers,” the authors wrote.
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Based on a random sample of 344,400 individual returns from 2019, the paper says accuracy is “much higher for low- and middle-income taxpayers,” with errors more likely to occur as deductions details increase.
Former President Donald Trump’s tax overhaul nearly doubled the standard deduction, reducing the number of filers who itemize. In 2019, nearly 90% of taxpayers used the standard deduction, according to the IRS.
“I absolutely agree with these findings,” said Tommy Lucas, Certified Financial Planner and Enrolled Agent at Moisand Fitzgerald Tamayo in Orlando, Florida, pointing to other countries with automated tax filing systems.
“It would save so many people the stress and headache of figuring out what documents they need or how they are going to pay to have their return made,” he said.
Indeed, 36 countries have a declaration of no return in May 2020, including Germany, Japan and the United Kingdom, estimates the Tax Policy Center.
Non-reporting reporting countries can use either “exact withholding”, where employers try to set aside precisely what employees owe, or “tax agency reconciliation”, involving a pre-populated interim statement that the taxpayer must approve, according to the Tax Foundation.
However, this may be more difficult in the United States, which relies on the tax code to deliver social programs, taxes households “as a single unit” and charges regular income taxes on certain investments that are not not subject to withholding, argues the Tax Foundation.
Still, the paper suggests that automated returns can save time and money for those making simple returns.
“Prepopulation is especially effective for single, young, and no-dependent taxpayers,” the NBER authors wrote.
Additionally, auto-completed returns can be useful for non-filers, including those who are due to receive the earned income tax credit or child tax credit, “potentially pushing them to seek refunds or pay the taxes due”.
“The first thing that struck me was that $9 billion in refunds were owed to 12 million Americans due to non-reporting,” Lucas said.
Some of them may include high school or college students working part-time and earning less than the income threshold required to file a return, or low-income Americans without the resources to process returns, he said. declared.
Although about 70% of Americans — those with an adjusted gross income of $73,000 or less — are eligible for the IRS Free File, only 2.6% used it in 2019, according to the IRS.