Hi Americans!
Genuine question : I’ve always found it strange that people in the U.S. have to file their own taxes every year, even though the IRS already gets info from employers and banks.
Wouldn’t it be easier (and more accurate) if the government just calculated it and sent you a bill or refund?
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Trust me, we want to know too
There are a lot of deductions, taxes on things that aren’t as easily traceable, and a ton of people here so doing it all automatically isn’t as possible.
Because big financial companies make money from us hiring them to do our taxes and they lobbied the government not to do taxes for us
Government doesn’t have all of the information.
They do know some of it.
So when you file, IRS is checking what you have reported vs what is reported to them. But there’s plenty of things they don’t know about (side gigs, donations, medical expenses, etc.).
You can search for the other 4782 times this has been asked if you want more details but, in short, the IRS doesn’t have all of the pertinent information in order to do that. Could they do it for the most absolutely basic tax scenarios? Sure. But tens of millions of people (which is a conservative estimate) don’t fall under that umbrella and it is a lot simpler to just have one process for everyone than multiple different processes.
I know it’s ass backwards but on the other hand even if the government did calculate it for us, no one would trust it
The government doesn’t know how much everybody makes, or how many deductions people are entitled to.
For most people, “doing taxes” is a very quick process.
No, because the government may not have all the details, the government may not know about tax deductions you plan to take. For example there are a number of home energy improvements that are tax deductible, ie if you add solar panels or low e glass windows to your house, you can deduct part of the cost from your taxes.
If we did that we would probably end up paying a lot more. The American tax system allows for a lot of deductions that we don’t have a system to automatically track and report.
Because the tax system is used to encourage lots of things. We wanted to encourage home ownership, so we let people deduct mortgage interest from their income. We want to encourage people to install solar panels, so you get a deduction if you do. We want to encourage charitable giving, so we allow people to deduct their donations. Add in 1,000 similar things, and people must calculate their income after deductions to determine how much they owe.
It’s also potentially equally complicated on the income side depending on the nature of business ownership, investments, etc., but that’s rarer.
How would the government know how much money I donated to my church? Or how much my wife spent on mileage for her business?
Turbo tax literally lobbied to stop the IRS from automatically doing it. In fact they even tried to bar the IRS from offering a free tool
I have investments that make it more complicated and there are tax credits for a lot of things along with write offs. Everything from small business to teachers with school supplies.
For the person who just makes a paycheck and doesn’t have much of anything, it is nuts that they have to do it. Even as someone with some complexity, it’s not that hard and I like being in control of it as the government makes mistakes.
It goes back to a time before big employers when most people were self-employed.
The federal government doesn’t know how many bushels of corn you grew and sold at a farmer’s booth of the side of the road.
Edit: see second chart here. Self employment in try 1950s was 25% of non-farm workers. I don’t know how to upload pictures. https://www.investing.com/analysis/percentage-of-self-employed-americans-at-a-record-low-165543
If you have multiple income streams and different deductions, PAYE doesn’t really work as well. We pay out of our paychecks (or quarterly estimated payments if you’re self employed), but if I then get a $3200 deduction for [insert reason here] and don’t report that to my employer, isn’t it better that I get that money back? Yes potentially we could have an army of IRS agents who file taxes for every American, but that is not only an expensive burden on the government, it doesn’t guarantee all the paperwork is handled properly or timely. The government doesn’t know if they’re missing a form, the individual likely would. “Hey where’s that deduction form for the EV I bought? Or the charitable donations, second job, investment income, etc”
Counter to what the internet likes to joke about, you don’t go to jail for “guessing wrong”. You go to jail if you intentionally defraud the government (not tax avoidance, tax evasion), and even then it’s difficult to put you away for that if you pay the correct amount owed. You don’t even pay a penalty if you make semi-accurate payments throughout the year!
They could really only do this in a simplified or flat tax situation. Right now, we have tax laws that allow complicated deductions. That deduction info is not all reported to the IRS and even if it was, they have no system in place to receive and analyze the data.
Because there are income and expenses not reported to IRS.
It’s all part of the fun game we get to play annually, you have to figure out the number or you get severely penalized, it’s a blast.
Because people have unique employment situations, investments, loans, and there are many factors that can change tax liability that the government does not necessarily have data on.
The same is true for other countries, Germany, for example.
When my income was lower, it was basically just a W2 and the gov knew about it from just my employer. Now my income is higher, I’m selling hundreds of thousands of stocks per year from different brokerages, I have deductions, income from rental properties etc.
The gov wouldn’t do a good job of getting the full picture, it’s easier for them to put that burden on the individual to report it.
That is how it works. However, doing your own allows them to capture additional credits often time to your advantage. They will provide the standard deduction, and here is how much we are tracking you paid throughout the year. Did we miss anything? Unique tax credits you are eligible for? First time home owner credit, new child, business expenses, moving expenses related to work, etc. Which equates to some money back.
There are the negatives of other taxable income that wasn’t recorded that they may catch later or in an audit if one occurs. Such as end of year cashing of bonds or stocks that was not captured in your tax paperwork.
Yes it would be simpler and for most people that should be sufficient. The system is largely broken, and entrenched parties (like tax preparation companies who make lots of money filing taxes on the behalf of individuals) like it that way. There’s also an argument that the complexity and special cases allow for abuse of the tax system by people who can afford to find and use those loopholes.
Taxes could be structured differently but just aren’t.
I don’t know. But I pay someone to do mine. I don’t need a call from the irs.
It’s a nice idea, but our taxes are too complicated to do it that way. So what the employers withhold from employees every month is an estimate of the taxes that person will owe.
But it’s a pretty rough estimate and there are so many things that can increase or decrease the taxes that a person owes that you have to fill out a tax return every year.
A lot of it is related to income your spouse may earn, kids, investments and your house.
The IRS doesn’t have all the information it needs to know how much you owe. They don’t know if you have cash earnings to report. They don’t know if you made energy efficient upgrades to your house. They don’t know if you had a child or what percentage of the time that child lives with you.
For most people taxes are super basic and take less than 1 hour to complete. They are free to file federally and cost like $15 to file for state. If you can count to 20, read, and follow directions such as, “enter the number you see in box 15,” then you can file taxes. These days you have the option to upload all of your forms as a PDF and they just auto fill in so it’s even easier.
Taxes are hard for self employed people/small business owners and people with cross-state travel jobs. For 99% of everyone else they are a trivial task.
The irs doesnt know everything, you have to tell them about your deductions, which alters your taxes
FILE <> PAY
Tax code is complicated. Income from your job, capital gains, back account interest, inheritance, rental properties all get taxes differently. Every state has different tax rules and different tax rates. You also get tax breaks for charitable donations, kids, mortgage interest, student loans, business expenses, and a bunch of other stuff. You can also do things like instead of being a private contractor form your own LLC and hire yourself as your only employee. Now it’s business profits not income you’re making.
I wonder where you come from as this is not an America-only issue. I’ve had to do some part of my taxes in Denmark and Czech Republic as well.
The government doesnt know everything about your taxes, its like a puzzle with half the pieces missing. They don’t know about expenses, side gigs, children, write offs/credits, you are basically filling them out to prove to the IRS what you actually owe.
I’m a retired CPA. It would be quite simple for the IRS to bill you based on information they have.
A vast majority of people are covered by the standard deduction, but if you could itemize you could just indicate the adjustment on the bill. Likely this wouldn’t be necessary since IRS gets mortgage interest, taxes, etc from third parties.
Small business reporting could easily provide an addendum.
The process would really be quite simple.
In 2024 the tax preparation business was about $14 billion. You don’t change things when dealing with that kind of money.
Frankly, in my practice we made about 30% of our income from preparation. The biggest chunk of our income was audit representation, collection matters, etc.
Filing a return is pretty common outside the US as well. Return-free filing is only used in 36 countries.
Anyway, coincidentally 99% Invisible just did an episode on this and answered most of your questions.
https://99percentinvisible.org/episode/624-tax/
Because it makes money for companies and trade groups who get to sell tax services to us. Those same groups have powerful lobbies AND (beyond them) it’s in the best interest of powerful people and groups who are able to hide a lot of money by doing their own taxes and by making sure the IRS is perpetually underfunded and understaffed
People who don’t itemize shouldn’t have to, but we have lobbyists who pay politicians to rig the game to maximize profits for companies and expenses for consumers.
Mostly because TurboTax and H&R Block lobby to keep the tax code where it is.
I saw a video a couple of weeks ago saying something like 85% of Americans take the standard deduction. So the IRS could literally just send you a bill (actually, in most cases, a check, because you over-withheld).
But the IRS exists to get as much money as possible from the US taxpayers. If we have to do it ourselves, we’ll make mistakes. Which result in fines.
The government knows what we were paid, but they don’t know what our exemptions are.
Government doesn’t know everything. For example, company doesn’t need to know if you have two jobs. How could they report your taxes for you if they didn’t know your total income? I wish we didn’t have to do our own taxes but here we are
The IRS doesn’t get all the info.
Doing our own taxes is a side-effect of the federal government implementing policy via the tax code. The US Federal Government is restricted in what it can and can’t do. One of the easier “things the government can do” is adjust the federal tax code.
So, if you want more <good thing>, give a tax credit or deduction for people doing that. Want people to not do <bad thing>? Raise taxes for everyone and give a break to the people not doing <bad thing>. Etc, etc.
Taxes get more and more complicated as time goes by, then there is a periodic reset where the tax code gets overhauled when people start complaining too much.
In any case, your employer doesn’t know that you’ve done <good thing> or <bad thing> so they can’t automatically get your taxes correct. Likewise, the government doesn’t usually know. Further, there are personal circumstances that the government adjusts you taxes for, but the government doesn’t know.
Add in savings/investment income, private businesses, side-hustles and well, it’s complicated.
The government can work out that you’ve cheated on your taxes, but they don’t have the investigative resources to check everyone. So they do cursory automated checks for the obvious stuff, and pick people to audit more thoroughly with deeper investigations on a semi-random basis.
So we can cheat?
Side gigs, investments, deductions – lots of information the federal government could probably get easily these days with everything being online, but wasn’t so easy decades ago when income tax started. What is taken out of paychecks is just an estimation.
The comments are really interesting where those from Southern/Midwestern states seem to not believe the government knows exactly what you owe.
There are various deductions from income that the government wouldn’tknow about unless you fill out a form. For example, there is a deduction for your expenses if you have to move far away for your job. Also, you owe income taxes on any income, not just your salary. If you work evenings doing odd jobs or you have a very small business, you must report that income. Obviously, people aren’t always good about reporting it.
Pretty much TurboTax invented the online filing system which was a huge leap forward from paper filing. Their business relies on that income which is convenient compared to legacy systems. Their business relies government making a free online system would deviate them. So not a big conspiracy just self preservation. But the system isn’t really special anymore and easily replicated. So there’s alternatives like freetaxUSA which was free for federal and like $15 bucks for my state vs $150 for TurboTax.
Because the IRS doesn’t know what deductions I can take.
There are many good answers to the question already – complexity of the tax code, etc. But the real underlying reason that the tax code remains complex. It’s so complex that there’s a USD $4.4 billion market for tax prep software. The largest producers of tax prep software – Intuit and H&R Block – spend millions on lobbying with the federal government to keep it complex.
Tax filing agencies lobbied to be able to keep automatic filing from the people so they can keep making money
Basically doing your taxes is just telling the government “yes, you have all the information, and i certify the information is correct”.
Or alternately “here’s some more information”. Like “I am eligible for this tax credit”, or “I am married, but we are filing taxes separately”, or “Here’s a list of business expenses that I as a business owner am declaring”, etc.
Here’s a quick example from mine this year:
I sold a piece of land that I was originally planning to build on, but plans changed and I moved across the country.
I have to pay tax on the capital gains from the money I made selling it vs what I bought it for. Both of those numbers got reported to the IRS.
However, I’m also allowed to deduct any expenses I had on the property for things like appraisals, surveys, earthwork, realtor commissions, etc. These numbers do not get reported to the IRS.
Because of that, instead of $8k in capital gains, I ended up having only $500 in gains, saving me a few thousand in taxes.
Other things such as taxes paid on vehicle registration, charitable donations, etc are deductible, but do not get reported to the IRS directly until you do so when you file.
A lot of Americans are VERY wrong about this. Our taxes are hard to file because of companies that make money by charging people to file taxes. Intuit (TurboTax) is the big one right now. Our taxes could be easy, but it makes someone else richer, so they are needlessly complicated.
Also tax errors mean that they can put penalties on you, so it earns them more money by making us do the dumb calculations.
US income taxes can be complicated. The only person who knows a particular tax payer’s specifics is the tax payer.
If you don’t have your own business or side jobs or whatever we should absolutely not have to file taxes. Accounting companies make billions though by helping people file. That’s probably why it hasn’t been simplified
Would it be easier? Yes. Would tax preparation companies and accountants make massive profits every year? No.
So we do it the complicated way. Because reasons. Probably so those tax preparers cane make lots of money.
I think the most high level reason here is that tax policy in the US is much more complicated than similar anglosphere or other western countries. It’s more complicated because the US government has used tax policy to address a huge swath of policy areas that are dealt with in other ways other places. Transportation policy, healthcare policy, retirement savings and the like.
Where other countries spend on public transportation we have mileage deductions for businesses. Instead of paying teachers more we have deductions for school supplies. Instead of a more robust and reliable social security program we have various tax advantaged investment vehicles.
Essentially since the 70’s the public has been increasingly skeptical of government spending public funds to provide goods and services. So in lots of cases the path of least resistance to address a policy area has been to figure out some sort of tax credit for either businesses or individuals. Rather than directly building renewable power we provide tax credits making it possible for firms to do so, rather than providing low income housing directly there are tax credits for building that sort of development.
It’s a different approach that makes taking full advantage of the tax code one of the most competitive things businesses can do, similarly shifting a lot of the onus into the individual to effectively engage with the system if you want to be an entrepreneur or earn a better living. The TurboTax and similar companies certainly do a lot of lobbying to keep it this way but I think the greater reason it stays that way is the lack of political courage/vision/power it would take to truly overhaul the system. To say nothing of how genuinely difficult it would be to predict the outcome of such an overhaul and the economic consequences.
The answer is because our tax policy favors the wealthy. The more assets you have, the more opportunities the tax code provides for tax relief. So a self-filing system is popular for the upper middle class and above who are predominantly the largest group of political donors and thusly have an outsize impact on policy.
Ironically the ultra right wing platform currently prevailing in the US cuts many of those opportunities for the upper middle class reserving them for only the wealthy while simultaneously raising tax rates for the poorest. At the same time, tax software companies have successfully lobbied to restrict the IRS from providing free filing services to their core customer groups. In the background, more types of transactions have been required to be filed directly to the IRS so they are in a better position than ever to do what you suggest. But special interest groups oppose it so here we are paying at least a couple hundred bucks a year to do tax prep.
They want you to make a mistake so you owe more money. Duh!
Lobbying
Lobbying. Companies like h&r block spend lots of money to stop anything like that.
The government could definitely get it started for you using W2s and other documents and the standard deduction, and you could complete the process with any additional documents that aren’t filed with the agency. However, there is a lot of money made in the tax prep business and those companies have lobbied Congress to block the IRS from offering any such service.
Surprised that literally nobody is mentioning the fact that doing taxes could be much easier, if not for the fact that companies like H&R Block and Intuit have made money off of the current system and lobbied to keep it the same. It is entirely their fault that many people have to pay a 3rd party to get their tax returns
If you’re self employed, the government has no idea about your finances.
Because the IRS doesn’t have all of the information on potential tax deductions.
For example, the IRS might not know how much I spent out of my HSA. Or if I bought a house. Or if I bought a vacation home. Or if I had a kid. Or if I put energy efficient windows in my house. Or if I went back to college.
There are hundreds of potential deductions that a person could report in their taxes that would lower their tax burden that the IRS wouldn’t have a clue about.
Also, frankly… it’s easier to have all Americans spend a half hour in their lives to file their own taxes instead of spending millions of dollars and hundreds of people to do them for the people. It’s literally the bare minimum, and it’s not nearly as difficult as people on the internet make it out to be.
It is worse. Each year, the federal government asks you to guess how much you owe and pay them voluntarily. But then they check behind you, and if they think your guess doesn’t match their guess, they penalize you.
Its because the tax system is architected for the wealthy. My uncle is only slightly wealthy. But because he lives off a stock portfolio and not a job, he pays zero federal taxes. Then he changed his state of residence to eliminate his state taxes.
The only taxes he pays are property tax.
Ideally, everything that has been submitted to the government already would be pre-filled out. But America has a system of providing subsidies by reducing taxes, where other countries might take all the taxes and send out checks. So in order to make this work, people have to input what deductions that can take. The government doesn’t have that information.
Because our tax system is ridiculously complicated, with countless twists turns and loopholes. As such the IRS has 100,000 employees (pre-DOGE). And there are another 80,000+ people working as tax preparers. Plus all the tax preparation software. It’s big business.
The American tax code is 17,000 pages last i heard and we as 250 pages a year. The complications are eye watering, and there are penalties for making a mistake. Helping people and businesses with thier taxes is quite a large industry.
I have opinions.
Because the lobby for the tax prep companies keep it that way.
I see people in my country say “why didn’t they teach me how to do taxes in high school?” Simple answer is they did. it’s called math and reading comprehension.
Yes it would be easier.
The vast majority of working people have their employer withhold taxes and report income. Similarly banks will report dividends and interest payments to the IRS. These two categories of things comprise the vast majority of taxes that people would put on their tax return. In these cases the government absolutely could simply send a prefilled tax return to citizens for review and most would not need to correct anything.
Even if the tax form is missing something you could still amend your prefilled tax return with the missing data.
So why don’t we do that? Part of the reason is lobbying. Here is a Planet Money episode where California tried to do prefilled state tax returns but lobbying killed the program: https://www.npr.org/sections/money/2019/04/03/709656642/episode-760-tax-hero
Because the rich have lobbied to make the tax code so complicated that they can get loopholes so they don’t have to pay all the taxes they should owe.
The level of complexity built in to the US tax code is staggering.
Yeah I agree! It should be whatever the government calculates with standard deduction and all that, and then you can fill in some forms if something doesn’t match your situation.
Tell me about it. I just did my taxes, through the IRS web portal. They had all of my information because it was submitted to them by the company that I worked for. They literally had me fill out all of the same data that was on the form. Every box. I thought it was ridiculous.
As an American, I had no idea so many of us were so proud to have a complex, stressful, and convoluted tax system. But looking at these comments, it would certainly seem that’s the case.
Personally, I think our taxes are unnecessarily complicated and could absolutely be simplified. It’s kind of crazy that in 2025, I have to either spend hours of time and/or spend money to figure out how much money I have to pay. Just because it has always been this way, doesn’t mean this is the way it has to be.
We as Americans wonder the exact same thing… Every year.
Sure there should be a way to correct the governments though on how much tax we owe, but for most of us, just going off their estimate would be good enough. For the majority of us, they have all the information they need, and the same information we have.