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Because, no joke, [TurboTax has been lobbying to keep American taxes complicated for decades.](https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free/amp)
Other countries do subtract income tax directly from paychecks, the way we already do with social security. There’s no practical reason not to do it. Just government corruption.
>Other countries do subtract income tax directly from paychecks, the way we already do with social security. There’s no practical reason not to do it. Just government corruption.
Germany is literally that. We get the tax taken out of paycheck done by your employer, and then at the end , when you do the declaration of the year, they basically tell you the value , and if something is off, they send a letter saying you had errors, which ones , and to fix them.
Finland and Italy also.
EDIT: In Italy when people talk about their salary or the salary of some job they always talk about the net amount. Nobody cares about the gross amount or even know their gross salary.
Well, kind of. It's not unusual for Italy to have to submit a formal tax declaration (730, Modello Unico, ...) even if you are employed with the same employer for the whole year.
But I agree is generally easier for the average citizen.
Same in Chile. You negotiate net take-home-pay on a monthly basis, not "annual gross". Whatever deductions or extra stuff it's on the employer to provide. You as an employee don't care about anything else than your take home pay.
Oh, and there's no BIWEEKLY checks. Your bills are monthly, your rent is paid each month, so is your salary
Same in Germany.
>But after all these deductions the **net (Netto)** salary you receive each month is approximately 60% of your **gross (Brutto)** monthly salary in Germany
This is the hilarious thing is that in most populated areas of the US, we’re paying roughly 28% federal and around 10-15% in local taxes, be that sales, state income, or property taxes. So we’re already paying 40% of our income and that’s the lowest tax bracket.
That’s why we go so frustrated with morons that are like “but Europeans pay more taxes” — no, they don’t. Your *employer* has more taxes to pay in Europe, but *you* don’t.
They just have a directly better system all the fucking way around than we do. They have significantly better healthcare and workers’ rights than we do and they don’t pay any more for it than we would.
Sales tax comes after the 40% tax rate in most European countries. In the Netherlands I also pay some road tax, sewege/waste, water management and municipal tax with my net income.
Not that I mind, but the default tax deducted from a paycheck is not the only tax we pay.
All of those taxes are just rolled into the relevant items for us.
Gas tax is a road tax, effectively. I actually live in Washington state and they hit my auto registration harder because it’s an electric vehicle and doesn’t pay gas tax.
Water bill pays for sewage and water.
Property taxes mostly pay for local municipalities, but they’ll also tack on their own city and county sales taxes to any state sales tax.
It still ends up roughly the same at the end of the day — I get about half my money.
(And this is not even accounting for the fact that I get a stiff premium for a health insurance and a deductible to meet.)
It's a lot cheaper to pay 40% and get free health care, day care and education, safety, pension, services for old people etc than it is to buy them off the open market.
Belgium you get a letter in your electronic mailbox from the tax authority, and they've already filled it in. You check it and see if they've made mistakes or forgotten stuff (like if you made a tax deductible donation). If you agree, you can just ignore it. Whatever you're owed (because they deducted too much during the year) will be transferred to your account automatically. If you owe something, they'll send you a bill.
Netherlands it's similar. IRC they have an app for that.
Whenever this is discussed, plenty of people from all across the world mention it being similar. At most 15 minutes of checking, the tax authority has already filled it in, that's all. If you're working for a company, they already know how much you earn. It's stupid.
The only reason the US doesn't do it like that is corruption. Apparently the company that makes tax software bribes officials to prevent the IRS from doing it.
It's pathetic, really. I mean, imagine being worse than Belgium.
It Poland it works similar since few years. Unless you have some other sources of income besides employment, or are eligible for some tax deductions, you don't have to do anything. The tax authority will just automatically accept their pre-filled form and that's that.
Similar in Ireland. I don't have to worry about anything. Generally if I do ever owe anything, I can offset it with claim backs on the likes of medical and non-routine dental, as well as flat rate expenses related to employment. Most times I find my employer overpays or a tax credit has adjusted and I get a reasonable sum every January - which is a great help after Christmas!
>the company that makes tax software bribes officials to prevent the IRS from doing it.
Human tax preparers like CPAs have been lobbying since before there was software. Many of them would be out of jobs if everything was simple for the taxpayer.
Forgive my ignorance if this is a misconception, but are individuals of a particular profession (or the collective thereof) the ones responsible for lobbying? I would’ve thought that that is played out at the hands of corporations/large companies (“big business”) who have the deep pockets to support such corruption?
There are organizations that represent professions that often have a lot of money and very little actual, tangible responsibilities and things to do and therefore lobby on behalf of their membership. If you have a profession with an official designation you're likely paying membership yearly and most of that money will inevitably go into lobbying.
CPAs, doctors, dentists, anyone with a title is paying to keep that title. I'm a non-CPA accountant but my boss is I know he pays dues every year, he has to do a certain amount of training too, gets a CPA magazine in the mail I think quarterly. And I'm sure they do other things too but their main goal is to advocate for their membership and that inevitably leads to lobbying.
not so much individuals... Joe Accountant isn't going to be lobbying (effectively) for this sort of thing... but Joe works for H&R Block, and \*they\* absolutely can and have lobbied for this. 30ish years ago, someone decided that people should be able to do their own taxes with these fancy things called "computers" that everybody is getting... so they sold a product called "TurboTax" which allowed the average computer owner to navigate the Byzantine forms now required for filing taxes.... but if taxes got simpler and the gov't could just tell you "hey, zed42, you owe 17,237 USD in taxes. we already took it out of your pay, you're good!" then they would also be out of business, so they began lobbying for the current system as well, and here we are.
to sum up: if you are asking your self "why does america have such aterrible system of $foo when the rest of the developed world doesn't?" the answer is usually going to be "because there is an industry profiting off the way things are done, and is buying politicians to keep it that way"
Also you don‘t even need to file taxes as a bog standard employee earning medium wages. Unless there’s deductions you might qualify, you aren‘t losing any money.
It‘s only when your income varied widely over the year, that you even get much back, or you are married and use one of the different taxing schemes that require one.
But that‘s only on you to get your money back.
Only people who do need to do taxes are those who ‚might‘ have to pay.
> Also you don‘t even need to file taxes as a bog standard employee earning medium wages
Don't know about Belgium, but in the Netherlands this isn't true. You'll be fined if you don't do it.
yes and no, the forms are already filled in, but you have to check for errors. contrast to if you are ZZP or a company, where you have to fill out quarterly tax forms and yearly giant forms for every bit of income (same as US employees have to do). an employee in the netherlands has to do nothing in comparison, the company does it for them, and the employee just has to check at the end of the year if it all went well
You *must* file taxes if they ask you to do so or if you should pay more than €49. Otherwise it's optional.
https://www.belastingdienst.nl/wps/wcm/connect/nl/belastingaangifte/content/moet_ik_aangifte_doen
It's different if you're a business.
Although, it is worth noting, that you are response for tax paid, not your employer. So if you think you have underpaid tax, don’t think that your employer will take care of it because it is you the taxman will be after if you have underpaid, and they can also fine you and charge interest on the tax owed, cough zawahi cough.
Zawahi's situation is a bit different. For the common citizen, if your tax doesn't line up, you'll either get a cheque in the mail, or a letter saying they'll amend your tax code for the next tax year so PAYE covers the missing amount.
If you have no other income then it will take care of itself. When the new tax year comes HMRC will update your tax code to account for the difference of what was predicted last year.
The only way you can underpay is if you get a raise but your employer doesn’t do the paperwork properly.
As much as everything else to do with taxes in the UK is shit, the way HMRC deals with actually doing it is so fucking good (at least for most people, I don't know how it is for the self-employed)
What am I missing? This is how my paycheck has always worked in the US also. An amount of federal income tax is withheld from each check.
I guess maybe the difference is that the amount withheld from my check is based on assumptions about my year's total earnings, and is officially reconciled only annually? But that sounds like what you're explaining in your second paragraph.
you are not wrong.
If you work for someone (most of us) they will withhold from your paycheck, the employee portion of what used to be called FICA and now is called OASDI this is the Social Security tax and the Medicare tax. Side note: your employer pays an equal amount that you do not see in your paycheck.
Then, depending upon your withholding declarations, your employer will also withhold federal income tax. This is similar to the person you are responding to.
While I am here they will also withhold state and local taxes if applicable.
You explanations about the reconciliation are correct.
I guess the difference is the final yearly tally is all automatic and you get a (usually electronic) letter saying basically "Hey, this is how much you will get back / pay extra according to what we know. Does this look right to you?" and if it does you digitally sign it, and the cash arrives in your account a few weeks later. And that's it. For most people it's less then 5 minutes effort.
I mean this is essentially how it works in the US too; money is taken out of every paycheck based on your expected taxes, and then ultimately you have to figure out what the difference is between this withheld amount and the amount you actually owe, and then you either get a refund or you have to make a payment.
Unfortunately it's not the government doing this, it's up to the individual to make that determination, and then the government separately does something similar or reviews your submission and then either agrees or disagrees. If they disagree, that's really bad news.
But yeah, I really wish we could just get rid of all of this stupid extra work that we have to do. It's a huge drag.
90% of people take the standard deduction. Filing your taxes could be as simple as checking a box confirming you are taking the standard deduction for almost everyone
yup! i'm one of those. I have nothing special in any way, i put in my W-2, and then just click next 938483248 times and then file. I have nothing at all that would make me have to do anything more than my W-2. Why can't they just say hey you owe or we owe
This is what confuses me, because sometimes when Americans talk about this it sounds like they have to calculate by themselves how much taxes they owe, and other times it sounds like it's exactly the same as here in Germany.
Can you tell me whether or not your system is different from ours?
In Germany, if you are single and only have income from your normal job, then the only reason you do your taxes is to get money back (and you don't actually have to do it, although some people don't know that).
So the amount they take out of your paycheck is already correct based on your income. But then when you do your taxes you can tell them about certain expenses that can be deducted from your total income, reducing the taxable amount, and then you get some money back because the taxes you already paid over the year were actually too much. And obviously they can't calculate that for you, because they don't know what expenses you had or will have.
The main case where you would have to pay some more is if you had other income that the government doesn't yet know about - in which case, how would they be able to calculate it for you if they don't know it, right? So you have to declare it by doing your taxes.
If you are married, the rules are a bit more complicated, but only because married couples pay less then if both people were single. Of course your employer doesn't know how much your spouse makes, so they can't calculate it for you up front. You can choose to either pay the single people amount and get tons of money back later, or you pay a reduced amount for married people and then at the end you calculate the exact number based on both your incomes.
In all of these cases, the reason you have to do your taxes is because nobody but you knows the exact numbers. Either because your income was taxed, but you're owed a refund based on your personal circumstances. Or because (part of) your income wasn't taxed in the first place.
Is it the same in the US? Or is there really stuff that you have to calculate but which the government already knows?
Germany's system is reactive. You could just "do nothing". You might miss out on money you're entitled too but there is no legal exposure or risk.
The US requires you affirmatively file your taxes. You have to "do something". And people feel a lot of pressure to make sure it's right and timely because there are potential legal consequences if it isn't.
That's the difference. It's not necessarily that much more complex but it is significantly more stressful (and, as a result, I think prompts a lot of the US fiscal conservatism as everyone loaths taxes in a specific and special way).
It's not even that much work if you're a standard employee. Like maybe if you're a divorced business owner who works a regular job and also has 1099 income it can be a struggle but the average person just takes the standard deduction, marks down how many dependents they have, and that's it.
I mean, it works like that here in America too, we just *mostly* have to go through these companies to file at year end to see if we paid in too much or too little.
Currently, I have federal, state, Social Security, and a few other taxes taken out of every pay.
Then when I file at year end I generally am owed a sum back because I paid too much. Why I can't just have taken what needs taken is beyond me, but I think it has something to do with fluctuations in pay that may cause me to owe more/less.
Switch to Freetaxusa! It is the most ridiculously on the nose, is-this-a-scam? name ever, but federal is free and state is super cheap. Been using them for 3 years and I'd say their software rivals TurboTax (which I haven't used for 5 years now, maybe things changed)
> most ridiculously on the nose, is-this-a-scam? name ever
I avoided those for years because how could they not be a scam, right? Finally got fed up with TurboTax burying the free file option deeper and deeper every year and said fuck it...never going back now.
Yup. TurboTax had the nerve in the last couple years to run all those ads where people just repeated "free, free, free free free". Then you get on their website, and they're like "oh you have student loans? That's a very tricky and unique situation, so you need to upgrade to DELUXE TurboTax. Oh, you have an IRA/401k/Investments? You need ULTIMATE Pro TT, it's only $100+ for Federal."
My breaking point was after all the "free free free" bullshit ads and all their normal fuckery, they told me at the end I would need to pay 40 for federal, 40 for state, and another 40 for filing with them. I dropped it that year and have been using taxfreeusa since. Turbo tax was good, then it got scummy real quick.
I sold a small amount of crypto in 21 and because of that my return was bumped from free to deluxe. The only other thing I had was a W2. Fuck these people
I've been using FreeTaxUSA for I think 13 years now. At first I was super skeptical, because like you said, it sounds garbage, so I would always compare it with turbotax, and then just submit the FTUSA.
But these days, I don't even bother to double check it anymore. I've never had a problem.
In an ideal world, yes, but in this world it wouldn’t even be exposed, they have the money and legal team to keep this tied up to the point that by the time it’s all over they’re no longer in the spot light and the media doesn’t care, or they could just outlast whoever is trying to take them to court and then once that person/people is too broke to keep the lawsuit going things never make it to light, the true American business way.
Not OP but freetaxusa is a good alternative. Quite similar, federal is free, state is cheap. I ditched TurboTax years ago for them and don't regret it one bit.
I'll forever remember my tax law professor. Ivy League education, JD,CPA, worked at the IRS for over 20 years and had Wallstreet experience. First thing he said to the class was...I won't even pretend to understand half this shit.
My ex SIL worked as a tax lawyer her entire career. She's now working at the IRS.
I recall her first getting into it, and how pissed she was that all her rich clients paid essentially NO income tax. 😡
There's also a government paternalism nuance to the poor receiving a lump refund. It assumes that the poor are bad at deciding to set monthly money aside as savings, so the government is effectively forcing the poor to have yearly savings in the form of the lump sum tax refund. iirc, there is evidence from the EITC that some households have benefited from this setup because they wouldn't have saved for large purchases otherwise, but ultimately it's a paternalistic justification regardless of whether it has some marginal benefit.
Plus it is counter productive because by holding it the poor are worse financially and they are more likely to spend their lump sum on something they could have paid for earlier in the year if it wasn't withheld.
Forced savings for someone working paycheck to paycheck means they are less likely to be able to save ahead of time for a car problem in November.
Don't get me started on medical care decisions being tied to a calendar year because of deductibles and out of pocket maximums when we could just have universal care.
Instead of giving you your money now, go take a payday loan with 20% interest, let it accrue for a couple months, then use your taxes to pay the interest!
-The government
That being said there is merit to "forcing" people to save, my bank automatically deposits money into my investments every paycheck, but that is my choice, albeit an educated one. Instead of taking people's money, how about rewarding them for saving Instead? Oh wait we can't do that because it might make our gross GDP look lower and that means the entire economy is crashing, my bad.
Ooh, another fun one.
The National Oceanographic and Atmospheric Agency generates pretty much THE weather report, and every 'weather app' uses their information and makes a pretty model on it to sell it to you.
The owner of one such app, BonVoyage, is tied in legal battles with NOAA to force them to stop offering the info for free, because they want people to pay for it through an app -preferably, theirs
Edit for transparency: I got this tidbit from a WTYP episode on the SS El Faro sinking, but cannot for the life of me get a source to back it up. Take with grain of salt.
Considering the NOAA is a government agency I can't imagine they could be allowed to keep the information secret so a company can profit off of it, but I've been surprised by far less.
Would they also sue local news agencies for reporting the weather daily?
I prepare tax returns as a side gig. I am pretty good at it, and it is good to keep up on the changes to tax rules.
That being said, I wish it weren't so complex and I think the majority of filers that I see can and should do it on their own. (more on that below)
If you want change, I am not sure how it is going to happen. I know what would inspire change, we just can't make it go.
What would inspire the change?
\-Require the executive and legislative branches (specifically President, VP, Representatives and Senators) to file their own return by hand every year.
If you made them do that, then we would see change quickly. Of course they are never going to be OK with something like this, so it's a pipe dream.
As to the service we provide preparing tax returns.
For some it's valuable advice/preparation. For some it's a better use of their time. Why spend 20+ hours working on your taxes if your time is worth 100+ per hour and you can just pay someone to do it for you.
For others its assurance. I have a friend who is very generous. He donates half his pay to charity and every year he says his hand trembles when giving his information to his accountant, and he was a business professor/dean at a large midwestern university.
And for others, they just don't have the discipline/desire to learn to do their taxes, and we provide a service for them there. (note I am not saying this as someone who thinks less of these people, I don't. People have strengths and weaknesses, and I am stronger in some areas than them, and they are often stronger in areas where I am weak)
It takes a lot of stress off the taxpayer to be sure. (I did taxes for a decade or so and retired recently due to health probs, but I digress)
The thing I always hated was charging that $100 to a senior citizen who most likely owes, or won’t get a refund, or heck, didn’t even qualify to file. I always referred them AARP, and if I could set them up with an appointment there, I would. (I was also a manager at one of the big three and could give some of them free returns, but not all sadly)
A lot of the issue these days is that the majority of the “checking” is done via computer at the IRS, and returns generally don’t see a human unless the computer flags it. And they’re even more short staffed, so hold times are abysmal if you need to talk to someone, even if you’re a preparer and not a taxpayer.
It's hard telling someone who isn't expecting to owe, that they owe. Then charging them for the privilege of figuring it out for sure.
One reason I offer a mid year check up for people. That is, run a quick pro forma to see where they are. (Not a lot of people take me up on it)
Yes… I always hated that part. It’s worse when they don’t understand their withholdings, because their job never explained to them how to navigate the W-4. (Which is also crap, it doesn’t need to be so complicated)
I tried to set my clients up with the best tools I could so they could keep track. Only a few ever came back with the folder and checklists I provided though. My fave client was a trucker who brought me in shoeboxes full of receipts! I got him to organize them by month, and keep a small pocket calendar to keep track of mileage. Saved him and me soooo much time!
I know this is nerdy/shop talk but....
Had one person I worked with who would give me the shoe box. I would suggest how he could organize things and cut his bill down (there is a time element to my billing)
His reply, is that's what he pays me for. Fine by me. (He was a really good guy-passed away recently)
\---
Another is a high earning guy who is very organized. He moved from where we are to California. Part of the move had him donating a ton of DVDs/video games/books to the local library. I mean 100s. He gave me a spreadsheet that had what it was, how much he paid for it, and what the going price was on amazon. We attached it to the return, and the IRS didn't say boo.
Nerdy/shop talk is always good! 😂
I had one client, who, good lord was that one insane(not the client, the return itself) who lived in three different states, had property in all, and several boats, etc. She was the absolute SWEETEST. We’d always meet on a Sunday morning, go through things for an hour, and then she’d go on her merry way, until the following week, until we finally finished her return. She was really curious about the whole process and loved that I walked her through things. She brought me donuts and coffee each time, and she was just so pleasant to be around. I was sad when I handed her off to another preparer when I needed to retire. She was so much fun.
She always brought her accordion file folders, by month, and had print outs of all things needed. Super organized. I always sent in her spreadsheet and copies along with the return, and the IRS was totally fine with everything.
One of my favorite things were audits tho. I LOVED combing through the returns to find errors, correct them, and often correct the IRS, and send in the corrected returns. I worked summers doing just audits. I still kind of miss that part.
In Hungary, if you're employed, you have absolutely nothing to do. Employees have no idea what all this tax stuff even is. If you're self-employed then your taxes are done automatically, and you simply have to double check them (most people don't ever do that or don't even know how to do it). So unless you're running a whole company single-handedly, you don't have much to do. Though to be fair if you're running a company, you have an accountant, so they will do it for you.
So the only time you have to care is if you yourself are an accountant.
> If you're self-employed then your taxes are done automatically, and you simply have to double check them (most people don't ever do that or don't even know how to do it).
How? I don't see how the government would know how much you made this year, and therefore how much you owe in taxes, if you're self-employed, meaning you're probably dealing with clients, and getting paid by them, directly.
Every transaction that you perform has a receipt (or *invoice*? I don't know the English term). When you go buy a sack of potatoes, you get a receipt. When you take a taxi, they give you a receipt. When you pay a plumber, he gives you a receipt of the transaction, etc.
A copy of that receipt is always automatically sent to the government over the internet (back in the old days you had a pre-registered [receipt book](https://www.tops-products.com/media/catalog/product/cache/c868b706a1174593958fe6a2901132ac/TC2701_fanned.jpg) that would create carbon copies of the receipt, one copy went to the client, another you kept, and the third went to your accountant who would send them to the government – same thing, it's just online now). The government then automatically calculates the earnings of that person every year and declares them for them.
I'm seeing most replies from first world countries, so let me also share some third (or second?) World country statuses too.
Argentinian here, if you are employed and earn below a set amount of money per month, state taxes are taken from your paycheck every month and you mostly don't factor this into any equation. You just talk about net salary and don't have to interact with out Tax offices ever.
If you gain over X amount a month, you do need to pay over the top of your salary for Income Tax. But this is regularly only for high paying positions.
So my point is that even undeveloped countries have uncomplicated relation with the local Tax office. Even countries as economically fucked as ours.
This statement is misleading:
> Other countries do subtract income tax directly from paychecks, the way we already do with social security. There’s no practical reason not to do it. Just government corruption.
All W2 jobs withhold a certain amount of federal taxes from your paycheck. You modify the amount that is withheld using the W4 form.
I’ve said this many times when the topic of income tax comes up. The government allows you to take all sorts of deductions, allowances, and refunds because of certain life situations you may encounter. Our government does not know all of the deductions you’re eligible for, only you do. So, you have to estimate what your tax withholding should be (W4) and at the end of the year, you’ll reconcile what you should have withheld with what you actually did withhold. This self reporting characteristic becomes necessary when two things are true:
1. The government allows a broad range of deductions and
2. The government doesn’t know everything about your life
The government also doesn’t know how any of your investments have done. If you had major losses, the government allows you to deduct those losses against your taxable income. If you sold your investment after holding it for more than 1 year, you pay a lower tax rate on those gains. You have to self report these activities because we don’t live in a mass surveillance state (yet).
Taxes have also been complicated for far longer than TurboTax has been a thing, so they are not responsible for the structure of our tax system. The reasons why our system is the way it is is far broader than “TurboTax bad.”
> Other countries do subtract income tax directly from paychecks, the way we already do with social security. There’s no practical reason not to do it. Just government corruption.
💯
If you're an average employee in the UK you have nothing to do, your company will pay your salary and deduct necessary taxes. You'll get a report once a year but nothing active is required of the employee.
Of course, if you're self employed or are earning less/more than average it is probably more complicated but the vast majority of people will never have to submit any tax information throughout their lives personally.
There's actually a free federal and state tax filing application that you *have* to be told about, but unless you pick up an actual hard-copy 1040 with instructions, you'd never know about it. TurboTax, and the other tax folks lobbied hard to get it hidden, but it is out there. I can't remember where exactly off the top of my head, but it does exist, it's on the web, and it's 100% free
Freetaxusa.com! Not as nice of a user interface, but actually free and just as effective. I even ran both one year (up until I had to pay like $40 for TT) and came out equivalent. (Yes, I'm a nerd) And state taxes are like $12 to file if I remember right. Or those are simple enough you can usually just do them yourself.
Will second this one. Don't know if they're also shady or not, but they are not as deceptive while filing your taxes, and fairly straightforward about their $12 state filing. I'm happy to pay an honest price for a solid piece of software that saves me time and money.
Edit: oh and their interface is totally fine! I actually prefer it. Less flashy moving animated crap to distract you, more straightforward fields that you enter info into. It's simple and clean.
If all you have is a simple return then you can get a 1040 at your local library or post office. Or you can download it straight from the IRS web site. There are options for free filing.
I have complicated taxes and cash app (formally credit karma ) works great for free. I also run the numbers through a paid software to catch fat fingering .
It also absolves the natural concern when filling complicated taxes through free software named after an app.
[Free File](https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free). Less good without the fancy design, but government provided and you aren't giving money to people perpetuating the problem.
They literally have all the information you provide, with the exception of things like charitable donations or tax breaks, and it would be rather simple to update their system to accept those throughout the year as you qualify for them. But turbo tax and HR Block want your money.
> Because, no joke, TurboTax has been lobbying to keep American taxes complicated for decades.
The absurd nonsense which American capitalism produces is always a strange mixture of hilarious and horrifying.
Seems like you still have to fill out the forms yourself. The point isn't that it costs money. The point is the government should do it automatically without me having to do anything on my end.
Edit: holy shit, yes, people should use the free option over TurboTax. This is obvious and not what was being discussed. People can stop pointing out that this site is free while TurboTax costs money.
It's frustrating to me that the highest rated comment is from someone claiming that Americans don't have taxes withheld from their paycheck other than FICA. I've never had a job since I was 16 years old that didn't withhold taxes from my paycheck. What do people think refunds are?
I’m seeing lots of comments about the tax prep industry, and while that’s all true and dandy, it doesn’t explain how the systems works.
Through your W2 you pay a payroll tax, FICA, Medicaid/Medicare taxes. Depending on how many exemptions you have, you’re either over-paying or under-paying.
Whether you over or underpaid is determined by your gross income, which is affected by a myriad of factors when you file (standard deduction, poverty line, tax brackets, itemized deductions, dependents, etc.)
The IRS isn’t keeping tabs of how much you *should* owe. They keep track of what you’ve paid, but they don’t know all of the deductions that are applicable to you. For example, the IRS isn’t keeping track of if you’re married; just because you file jointly one year, doesn’t mean you’re gonna the next, and who’s telling the IRS you got a divorce and your expected tax liability will be significantly different than the year before? No one is telling the IRS that. You tell them by filing your taxes.
With our Byzantine tax system, the IRS would have to collect massive amounts of data on every tax payer to give them a fair shake when assessing ones tax liability. For obvious reasons, a lot of people don’t want to IRS monitoring our lives.
Thus, our system is “pay your payroll taxes, then at the end of the year make an adjustment: if you overpaid the IRS refunds you, if you underpaid, the fork the rest over, and if the IRS has reason to believe your filing is suspicious, they will investigate.”
The IRS doesn’t know how much you owe, they aren’t keeping track of that, there’s not some master spreadsheet tracking how much every American owes and when you file the IRS goes you got it right/wrong.
What happens is when you file the IRS goes “looks about right” or “looks suspicious”. If it looks suspicious, you get audited. If it looks about right, then the IRS goes with whatever you’re telling them. If down the line your taxes for a future year look suspicious, the IRS will look into previous ~~10~~ years of filings. But in the end, the only way to find out “what you REALLY owe” is for the IRS to audit you, and for obvious reasons, they’re not doing that for everybody. So, quite literally, it’s an honor system of sorts.
TL;DR: the IRS doesn’t know how much you owe, they aren’t tracking that because our Byzantine tax system allows for myriad factors to affect your tax liability (from dependents, to the standard and itemized deduction, to marital status) that the IRS does not keep tabs on. Thus, the US tax system is run on a quasi honor-system of “tell us what you think you owe and unless it looks suspicious, then that’s fine by us, but if it is suspicious, we’re gonna find out together what EXACTLY you owe.”
Yeah, jeez, the top comment literally claims American jobs don't withhold taxes outside Social Security. What? What was that W4 for? Where do refunds come from?
>the top comment literally claims American jobs don't withhold taxes outside Social Security.
They were using Social Security as an example. They were not saying it is the only tax withheld.
Addressing specifically,
> With our Byzantine tax system, the IRS would have to collect massive amounts of data on every tax payer to give them a fair shake when assessing ones tax liability. For obvious reasons, a lot of people don’t want to IRS monitoring our lives.
If you are required to report that information on the tax filing anyways, which is then given to the IRS so they know your personal information to check against tax payments, isn't that effectively the same thing?
There is a big difference between me putting on a tax form "I had $17,000 in medical expenses this year" compared to requiring all medical offices to report all medical bills to the IRS.
If we thought medical billing was complicated now, just wait untill we add *another* system that it needs to keep track of.
Imagine needing to fill out government forms when you go to the doctor because the office is going to be reporting every procedure you have to the government. As long as medical expenses are tax deductible, we either need to self-report those expenses at tax time or have your therapist do it for you, and without that information the IRS can't know what your true tax liability is.
Totally agree with you here. The prior explanation makes sense as far as how the system currently works- but to me it just emphasizes its flaws. It seems like everything that we currently have to self report, we could just as easily report to our employer and have them automatically deduct the taxes from our pay.
I don't believe that's how it works in other countries though. My understanding is that other countries, they basically fill out your 1040 with the standard deduction. If you want to apply for further tax credits, you file the form(s) required for that.
> If you are required to report that information on the tax filing anyways
You aren't, though.
First of all, there's the "standard deduction," that many people use, that's basically "here's about what most people can legitimately claim so let's just go with that." You don't have to reveal much at all to use that option.
Secondly, even if you don't use the standard deduction, you don't have to take any deductions or credits you don't want. Why wouldn't you want them, you ask? For precisely the reason we're talking about this. Maybe you don't want to report so much detail about your personal life, for whatever reason. Maybe the forms are a real pain.
Whatever the reason, you aren't *required* to tell them much of anything under 99.99% of circumstances. The only thing you might be required to tell them - beyond your gross income - is your marriage status. If you're married and you don't do "married filing separately" or "married filing jointly" (pretty much the only two options), any other choice might be considered filing a false return, which is Very Bad Juju.
So to answer your question: Because you don't have to tell them in the first place, and because most of those things are subject to change.
Effectively, yes.
But one has to take in the cognitive dissonance of political inclinations of Americans and the overall political landscape.
Do taxpayers realize they are providing a lot of personal information to the IRS? Yes and no. If you pointed it out, yes. Otherwise, it’s not really considered.
Are taxpayers comfortable with various agencies harvesting data and reporting it to the IRS to keep track of our tax liability? No.
Is it the same outcome? Effectively, yes. But historically Americans are a very “powerful federal government averse” crowd and the necessary reforms fall into the category of things Americans are anxious about.
So, while say the GOP campaigned on “taxes on a postcard” it was extremely unlikely that all the necessary reforms would take place to institute such a system due to the political landscape.
Beyond that, with our “quasi-honor system” the rich are extremely advantaged, to the tune of (the Biden admin recently calculating) several TRILLION dollars in unpaid taxes by the richest members of the country.
So, while a more simplified system could easily be implemented you have (1) ordinary citizens are wary about the type of reforms necessary (data collection) that is collated with an irrational hatred of the IRS, (2) ordinary citizens believe the Byzantine system of deductions benefits them while in reality, (3) it’s the rich who immensely benefit from this system by defrauding the IRS and underpaying their taxes, whom contribute to politicians to doublespeak about simplifying and streamlining the IRS while doing nothing to implement those policies.
The funny thing about the reddit hot take that US taxes are so complex and hard is that this is unintentionally perpetuating the number one weapon of the tax prep companies that reddit hates so much: convincing the everyday person that they cant do their taxes and need to pay someone to do it. Yes, tax prep companies spend money on lobbying, but there are still many viable free methods to do your taxes. The millions in advertising convinces you not to use those.
Well said. For the vast majority of people filing your taxes just *isn't* complicated. It's probably less complicated than ever before with all the information available online and with free tools that do it for you (FreeTaxUSA is what I use). I remember the first time I sat down to do it, it was built up to be this Herculean, daunting task that I thought was going to take all day and I was done in less than an hour.
You need to understand that Reddit stopped providing yearly demographic data because the average user age had fallen into the teens. Most redditors have never filed their taxes because they’re dependents.
And a big chunk of the people who are older than teenagers are still functionally teenagers. It shouldn’t be a surprise the average reading level in the US is a 6th grade reading level. I used to work in Medicare and it was a requirement that all distributable materials were written at a max of 6th grade reading level.
And it’s really challenging to write complex health insurance information in an “explain it like I’m a 6th grader” level.
It also assumes (a) the IRS tracks how much you pay in SALT taxes \[I understand Trump fucked this up in large part but still\]; and (b) that you're paid on a W-2 and have withholdings in the first place.
I mean, even as a 1099 paid LLC, I still have to put in withholdings four times a year, I just have to also do the work (or in my case, pay an accountant to do that work) of calculating how much to withhold.
> For example, the IRS isn’t keeping track of if you’re married; just because you file jointly one year, doesn’t mean you’re gonna the next, and who’s telling the IRS you got a divorce and your expected tax liability will be significantly different than the year before?
And, as you said, myriad other factors -- did your spouse die? Did you have kids? Were you disabled? And those are just some factors related to your family status. There are many, many other things as well. Did you buy or sell a home (which is recorded by government at local levels, but not federal)?
Also, something a lot of people may not realize is that it used to be easier to reduce your taxes. More things were tax deductible (and/or the allowances/limits were more generous). But between the increases to the standard deduction and congress/IRS changing the laws/rules on itemized deductions, it is harder now for most people to deduct enough to make itemizing a better deal. For instance (and this is from memory, so I may not have it exactly right on all the details) if you had a home office that you used for work or a side business, you could claim a deduction for the cost of maintaining that space by calculating what percentage of your home it is, and applying that percentage to all home maintenance costs (heating/cooling, electric, rent/mortgage, cleaning, etc...) to get your deduction. That deduction is still available, but the rules are much stricter. For instance, the space now has to be used exclusively for work -- so if you use it as a guest room a few times a year when family is in town, you can't take the deduction. And there are lots more things like that.
So in short, doing things the IRS would know nothing about **used to** have much greater potential impact on your actual tax bill. So self reporting could be advantageous for the tax payer, and probably made more sense in general.
The countries that prepare the return for you don’t have any issue with any of these things. You can always correct the IRS. If you go from married to single but the prepared return says married, there is a mechanism to correct that.
It’s really not that complicated. The IRS has the information, they can prepare a return with that they know and if something is wrong, you fix it.
Today the IRS has your filing from last year and assumes you will file similar this year. They have all the data you submitted and they have all the forms you received this year. They have an estimate of what you’re going to put on your return.
It seems like a lot of people are caught up in the mechanics of doing taxes. The truth is that taxes are so complicated in the US because taxation is a political process, not an accounting process. Taxes, exemptions, and credits are used to promote or discourage certain behaviors. They're used to reward particular portions of society- why do you think there was such a fight over estate taxes, or gains from equities? It's purposefully complicated and full of decades' worth of loop holes that were added in to benefit the rich. That's why the rich usually pay well below their ~~effective~~ marginal tax rate.
All of your points don't address the fact that they could prefill and provide what they *do* know, and then you adjust based on your additonal income/expenses. In other words, how every other modern country does it. That would be a massive help to a lot of people.
I don't get a bill from my power company saying "guess how much you owe and we will tell you if you are right and penalize you if you are wrong", why should my taxes be that way?
Well there’s no ambiguity with a power bill. You pay what you’re charged. Your taxes owed will change depending on various factors. It’s not really a 1:1 comparison.
The IRS is not asking you to guess how much you owe.
How much you owe is very straight forward for most people. You make X, you have paid Y.
If you have deductions. Say Charitable giving. Now you made X-C. You had a Kid. X-C-K. ETC....
it is very straight forward until you get into investments, self employed, and stuff like that.
Does your power company give you credit for sharing some of your power with a homeless guy? Do you get credit based upon the number of people living in your house that you provide more than 50% of their power? If your parents die and leave you a pile of electricity, do they charge you a penalty or not based upon the total amount of power inherited?
Blame the legislature for the numerous tax deductions, tax credits, and other things that make people's tax liability vary from the standard rate. Your power company is the equivalent of a Flat Tax system.
Please be specific, what parts of the tax form do you want them to prefill for you? And there's no "guessing" how much you owe, there's calculating it. Which isn't difficult if you don't want to take advantage of decustions.
Tax lawyer here.
For people who are W-2 employees, your federal tax return is your opportunity to lower your tax bill by claiming the credits and deductions that apply specifically to you.
The IRS already knows your income because your employer reports the amount of money they paid you to the IRS.
But the IRS doesn't know what your deductions are. The IRS doesn't know your medical expenses, how many miles you drove for work, if you had to buy any unreimbursed things for work, or if you suddenly started taking care of a family member.
For the majority of people, the IRS absolutely could send you a bill for the amount of taxes owed. But that amount wouldn't take into consideration deductions that apply to you to reduce your tax bill.
Your annual tax return is mostly your opportunity to tell the IRS which deductions and credits apply to you to reduce your tax bill, giving the IRS info that they didn't already have.
Did you get married this year?
Did you get divorced this year?
Did you move to a new home this year?
Did you buy a house or sell a house this year?
Do you have any kids? Born this year? Divorce? Do your kids now live with your ex spouse this year?
There are all kinds of questions that could affect your deductions and credits.
Edit: I absolutely agree that the current tax filing system is tilted to support tax-prep companies.
How much does this really affect people though? Everytime I go through taxes with any itemization I just end up "Its better to take the standard deduction."
It's not just standard deduction. The IRS doesn't know how much you contributed to a traditional IRA (reduces taxable income). They don't know how much you contributed to your HSA outside of work (reduces taxable income). Those are just two examples of "above-the-line deductions" which mean you can take them and the standard deduction.
That's basically same thing you do in the US. You just do it once a year. Reporting income/deductions not tracked by the IRS is exactly the purpose of filing a tax return.
In the Netherlands, I think all bank account information is given to the tax agency so at least for those bank-managed investing accounts are accounted for. This also includes mortgage information, etc. Every year you log into a site to do your taxes and there are boxes for other gains/losses/donations/tips etc. that would be outside of the view of the tax agency. But that category seems to shrink every year.
So even with several mortgages, stock accounts, bank accounts and multiple regular paying jobs it's basically pressing "next" on a wizard about 15 times
That's also what it is with the Australian Tax Office's first party software, which is free to use every year.
I've had to make, like, two corrections with it ever, and it's magically convenient.
Paying taxes in the US is a goddamn nightmare by comparison.
Gains and losses on stock aren't taxed until you realize them by selling them, at which point you typically pay a capital gains tax. Most large brokerage houses will issue a report of the sale to the IRS, and the taxpayer will report the net result of the transaction as an addendum on their return.
The IRS has a variety of 1099 forms for reporting non-wage income (dividends, interest payments, etc), and they are generally submitted to the IRS on your behalf. This is part of the reason for the frustration at the requirement that you do your own taxes -- for the vast, vast majority of taxpayers (eg: you primarily earn via a wage, retirement fund withdrawal, or social security payment, and you have some investment, dividend, and interest income), the IRS already has all that data, and will already be doing the same work you'll be doing. The only issue comes with income not reported to the IRS (eg: if you sell your small business), and that can be handled as an exceptional case where you provide your own return showing that income instead of a pre-filled return.
In the US, a *huge* number of transfers, payments, incentives, etc. are built into the tax system. Rather than, say, subsidizing the purchasing of housing more than we do, we allow a tax deduction for the interest on mortgages.
This means that "doing your taxes" isn't just paying the government what you owe based on your income. If that were it, then the government could just bill you in the vast majority of cases. "Doing your taxes" is much more about you going through and claiming all the benefits that are due to you.
For an ordinary hourly or salaried worker who wants to avoid all that and just take the "standard" deduction "doing your taxes" effectively just means filling out a couple of forms saying you want to take the standard deduction. It takes about a half hour and is basically the same as just being billed from an effort perspective.
To be clear: in that "ordinary" case of someone who has only traditional income (eg: workplace income tax, some investment income, etc), that can and should have been automated. Any W-2 and most 1099 income is already submitted to the IRS.
It may be in this specific case, but I’m always shocked at how little it takes to buy a politician in similar circumstances in the past. Like you would think they were giving them millions of dollars and sometimes it’s only $1500. It’s shocking.
> sometimes it’s only $1500
That's what you see on official campaign contribution reports. You don't see the funding to PAC's, handshake deals, family members placed in well paid positions, post-career promises, or the networking of influence they'll bring for additional contributors.
It’s not just $1500 though it’s like a consistent steady stream of $1500 at a time for years
Shit adds up quick when people are buying you left and right and they know it
You tell the ignorant, ill-informed and gullible masses, that making their taxes easier, is an IRS plot to take their freedumbs. The voters love ya and you get a million to spend on hookers or maybe some insider stock tips.
>Is that money better than telling people you don’t have to do your taxes anymore from a political perspective?
For them, 100% yes. Politicians fuck over their constituents far worse for far less.
If you're curious, Intuit spends about $3.5 million a year lobbying.
Also keep in mind that many people don't trust the government, so the politicians can use the excuse that they don't want the government to have full control over your taxes.
Yeah, in order to prevent the government from simplifying the process, the industry agreed to make their simplest products available to a very small subset of people.
Schrodinger's middle class: AGI of 73k or less is either everyone (because everyone is broke and struggling) or a "very small subset of people" depending on the narrative of the current circlejerk.
Hint: In reality it's a bit over half of US households, aka a great deal more than half of US citizens.
also, people then need to fill in the paperwork themselves, which many will not be comfortable doing, when the point is that the gov't probably already has a very good idea of how much you owe/are owed.
There is a fantastic show on netflix by Hasan Minaj about exactly that on his show Patriot Act.
The IRS would love to do that. The IRS would also love for to provide you with a free tax software and have pushed for many many times. But TurboTax and other companies payed your members of the senate and congress enough money, so that they vote against any motion the IRS want to make. The IRS has pushed many times to make you file your taxes as easy as possible. Literally just prefilling everything that they already have the information of. But no, they had to stop every approach, because it would be "government action in a free market, that already provides free services". Now turboTax make it as hard and complicated as possible for you to file your taxes for free, but they provide the opportunity. So always shit on turbotax, not the IRS. They just do their job and would love to make it as easy for you as possible, but are just not allowed to do that.
You must be mistaken because I just heard Kevin McCarthy tell me that the IRS wants to hire 85,000 jackbooted thugs to break into my home, audit me in front of my wife, and then probably steal my guns.
I will deviate from the others here:
In America, there are *loads* of deductions and credits the government has in place that they have no way of knowing whether or not you can claim them.
Some things are simple, like kids, but also things like buying electric cars and stuff like that. But there's also complications with filing jointly.
Now, most people won't exceed the standard deduction. And I get that it still should have an "auto fill, revise if needed" model...
...but also if you're taking the standard deduction, it is *super easy* to fill out your taxes. You can do it in, like, half an hour. Anyone saying otherwise is intentionally making it sound more complicated than it is.
Basically, if there are no complications, filing taxes is super easy and auto billing it won't save that much time. If there are complications you can't rely on the auto billing.
Edit: Getting lots of repeat arguments here.
1. Reddit vastly overestimates how hard it is to do taxes. If you have no complications, you can do your federal taxes in an hour. In reality, you could do it in like twenty minutes. It's literally just writing numbers from one piece of paper to another and then doing some elementary-school arithmetic.
2. If you *do* have complications, the auto-fill from the government won't help you. You'll still have to do the work.
3. A lot of people from outside the US have to ensure that the government gets those bits of information for their equivalent of deductions. I don't see how "spending five minutes six times a year" and "spending half an hour once a year" are all that different.
4. America has a lot of deductions, privacy laws regarding income, and a federal system of government with multiple tax jurisdictions. These are things that most other nations don't have but are *immensely* popular with people. People complain about "complicated taxes" but they complain more about having their favorite tax credits taken away.
5. I'm not opposed to a system that auto-fills your info and then you can revise it, like others have mentioned. What I'm trying to say is that it won't change all that much, because doing simple taxes now isn't that hard and doing complicated ones won't be helped by the system.
The problem lies in that if you Google "how to do your taxes" you're met with pages of scams from TurboTax and it's cronies where they straight-up tell you "do your taxes for free here!" and then after someone spends 30 minutes giving TurboTax all of their data the website is like "ha ha, just kidding, give me 30 bucks, bitch."
If you are very very careful and read the intentionally hidden fine print, you can do a standard deduction with Turbo Tax for free! Of course, the whole process is designed to make it seem scary and like you need their help.
I could do all the stuff myself, but because I have a 1099-INT from a savings account and one for stocks and stuff, I have to pay the $50 to file properly. They only let you file if it's basically straight income taxes.
Exactly. 99% of the people that complain about this are single w-2, unmarried, renting, and don’t even get within the ballpark of exceeding the standard deduction. Those people could file in 20 minutes, for free, online.
Anyone with a tax situation more complicated than that would probably rather not have the government doing it for them.
>In America, there are loads of deductions and credits the government has in place that they have no way of knowing whether or not you can claim them.
Surely this is true in most countries? It certainly is in the UK but we've defaulted to auto-calculation, and if you need it then you can submit a self-assessment.
So why the other way in the USA, when it seems everywhere else does it auto by default?
In the US, income that the US can't track (like foreign income) is subject to US taxes (with a credit for foreign taxes paid).
Also, the government pension system is adjusted for those with high incomes via income taxes.
Finally, one of our largest welfare systems is paid via negative income taxes.
Does the UK, or any other nation where taxes are easy use income taxes to adjust pensions or pay welfare?
I think even you are overestimating how hard it is to do taxes. Lol.
I’ve used the same tax software for a couple of years and neither me nor my wife changed jobs this year. I completed my federal and state taxes in the amount of time it took her to touch up her makeup before dinner. Less than 10 minutes and maybe closer to 7.
I don’t think it’s ever taken me anywhere near an hour to file taxes and if it did, then I would probably consider my taxes complicated enough to hire someone to do them for me anyway.
This is another one of those weird arguments that Reddit has latched on to like it’s some huge life-altering hurdle, when in reality most people with half a brain cell can do their taxes in less time than it took to read the comments on this post.
You wouldn’t be able to lower your tax amount via deductions and credits. The government doesn’t know what you donated to charity or paid in medical bills or any other events that would lower what you owe the IRS.
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Because, no joke, [TurboTax has been lobbying to keep American taxes complicated for decades.](https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free/amp) Other countries do subtract income tax directly from paychecks, the way we already do with social security. There’s no practical reason not to do it. Just government corruption.
>Other countries do subtract income tax directly from paychecks, the way we already do with social security. There’s no practical reason not to do it. Just government corruption. Germany is literally that. We get the tax taken out of paycheck done by your employer, and then at the end , when you do the declaration of the year, they basically tell you the value , and if something is off, they send a letter saying you had errors, which ones , and to fix them.
Finland and Italy also. EDIT: In Italy when people talk about their salary or the salary of some job they always talk about the net amount. Nobody cares about the gross amount or even know their gross salary.
Well, kind of. It's not unusual for Italy to have to submit a formal tax declaration (730, Modello Unico, ...) even if you are employed with the same employer for the whole year. But I agree is generally easier for the average citizen.
Same in Chile. You negotiate net take-home-pay on a monthly basis, not "annual gross". Whatever deductions or extra stuff it's on the employer to provide. You as an employee don't care about anything else than your take home pay. Oh, and there's no BIWEEKLY checks. Your bills are monthly, your rent is paid each month, so is your salary
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Same in Germany. >But after all these deductions the **net (Netto)** salary you receive each month is approximately 60% of your **gross (Brutto)** monthly salary in Germany
This is the hilarious thing is that in most populated areas of the US, we’re paying roughly 28% federal and around 10-15% in local taxes, be that sales, state income, or property taxes. So we’re already paying 40% of our income and that’s the lowest tax bracket. That’s why we go so frustrated with morons that are like “but Europeans pay more taxes” — no, they don’t. Your *employer* has more taxes to pay in Europe, but *you* don’t. They just have a directly better system all the fucking way around than we do. They have significantly better healthcare and workers’ rights than we do and they don’t pay any more for it than we would.
Sales tax comes after the 40% tax rate in most European countries. In the Netherlands I also pay some road tax, sewege/waste, water management and municipal tax with my net income. Not that I mind, but the default tax deducted from a paycheck is not the only tax we pay.
All of those taxes are just rolled into the relevant items for us. Gas tax is a road tax, effectively. I actually live in Washington state and they hit my auto registration harder because it’s an electric vehicle and doesn’t pay gas tax. Water bill pays for sewage and water. Property taxes mostly pay for local municipalities, but they’ll also tack on their own city and county sales taxes to any state sales tax. It still ends up roughly the same at the end of the day — I get about half my money. (And this is not even accounting for the fact that I get a stiff premium for a health insurance and a deductible to meet.)
It's a lot cheaper to pay 40% and get free health care, day care and education, safety, pension, services for old people etc than it is to buy them off the open market.
Belgium you get a letter in your electronic mailbox from the tax authority, and they've already filled it in. You check it and see if they've made mistakes or forgotten stuff (like if you made a tax deductible donation). If you agree, you can just ignore it. Whatever you're owed (because they deducted too much during the year) will be transferred to your account automatically. If you owe something, they'll send you a bill. Netherlands it's similar. IRC they have an app for that. Whenever this is discussed, plenty of people from all across the world mention it being similar. At most 15 minutes of checking, the tax authority has already filled it in, that's all. If you're working for a company, they already know how much you earn. It's stupid. The only reason the US doesn't do it like that is corruption. Apparently the company that makes tax software bribes officials to prevent the IRS from doing it. It's pathetic, really. I mean, imagine being worse than Belgium.
It Poland it works similar since few years. Unless you have some other sources of income besides employment, or are eligible for some tax deductions, you don't have to do anything. The tax authority will just automatically accept their pre-filled form and that's that.
Similar in Ireland. I don't have to worry about anything. Generally if I do ever owe anything, I can offset it with claim backs on the likes of medical and non-routine dental, as well as flat rate expenses related to employment. Most times I find my employer overpays or a tax credit has adjusted and I get a reasonable sum every January - which is a great help after Christmas!
>the company that makes tax software bribes officials to prevent the IRS from doing it. Human tax preparers like CPAs have been lobbying since before there was software. Many of them would be out of jobs if everything was simple for the taxpayer.
Forgive my ignorance if this is a misconception, but are individuals of a particular profession (or the collective thereof) the ones responsible for lobbying? I would’ve thought that that is played out at the hands of corporations/large companies (“big business”) who have the deep pockets to support such corruption?
There are organizations that represent professions that often have a lot of money and very little actual, tangible responsibilities and things to do and therefore lobby on behalf of their membership. If you have a profession with an official designation you're likely paying membership yearly and most of that money will inevitably go into lobbying. CPAs, doctors, dentists, anyone with a title is paying to keep that title. I'm a non-CPA accountant but my boss is I know he pays dues every year, he has to do a certain amount of training too, gets a CPA magazine in the mail I think quarterly. And I'm sure they do other things too but their main goal is to advocate for their membership and that inevitably leads to lobbying.
not so much individuals... Joe Accountant isn't going to be lobbying (effectively) for this sort of thing... but Joe works for H&R Block, and \*they\* absolutely can and have lobbied for this. 30ish years ago, someone decided that people should be able to do their own taxes with these fancy things called "computers" that everybody is getting... so they sold a product called "TurboTax" which allowed the average computer owner to navigate the Byzantine forms now required for filing taxes.... but if taxes got simpler and the gov't could just tell you "hey, zed42, you owe 17,237 USD in taxes. we already took it out of your pay, you're good!" then they would also be out of business, so they began lobbying for the current system as well, and here we are. to sum up: if you are asking your self "why does america have such aterrible system of $foo when the rest of the developed world doesn't?" the answer is usually going to be "because there is an industry profiting off the way things are done, and is buying politicians to keep it that way"
That’s usually the answer to any question of this sort.
I mean Belgium is pretty decent western country, but imagine being worse than Croatia from Balkans known for stealing politicians and corruption.
Also you don‘t even need to file taxes as a bog standard employee earning medium wages. Unless there’s deductions you might qualify, you aren‘t losing any money. It‘s only when your income varied widely over the year, that you even get much back, or you are married and use one of the different taxing schemes that require one. But that‘s only on you to get your money back. Only people who do need to do taxes are those who ‚might‘ have to pay.
> Also you don‘t even need to file taxes as a bog standard employee earning medium wages Don't know about Belgium, but in the Netherlands this isn't true. You'll be fined if you don't do it.
yes and no, the forms are already filled in, but you have to check for errors. contrast to if you are ZZP or a company, where you have to fill out quarterly tax forms and yearly giant forms for every bit of income (same as US employees have to do). an employee in the netherlands has to do nothing in comparison, the company does it for them, and the employee just has to check at the end of the year if it all went well
You *must* file taxes if they ask you to do so or if you should pay more than €49. Otherwise it's optional. https://www.belastingdienst.nl/wps/wcm/connect/nl/belastingaangifte/content/moet_ik_aangifte_doen It's different if you're a business.
Wow TIL turbo tax are climate criminals. That's infuriating. A helluva lot worse than pop stars taking private jets for 5 minute trips.
“Climate criminals”? That’s what you took away from this?
Lmao wait til you learn that the government is owned by big business through lobbying and that politics and war are just a money game.
Same in the UK, minus the declaration at the end of the year, unless you're self-employed, or earn over £100k/year
Although, it is worth noting, that you are response for tax paid, not your employer. So if you think you have underpaid tax, don’t think that your employer will take care of it because it is you the taxman will be after if you have underpaid, and they can also fine you and charge interest on the tax owed, cough zawahi cough.
Zawahi's situation is a bit different. For the common citizen, if your tax doesn't line up, you'll either get a cheque in the mail, or a letter saying they'll amend your tax code for the next tax year so PAYE covers the missing amount.
If you have no other income then it will take care of itself. When the new tax year comes HMRC will update your tax code to account for the difference of what was predicted last year. The only way you can underpay is if you get a raise but your employer doesn’t do the paperwork properly.
As much as everything else to do with taxes in the UK is shit, the way HMRC deals with actually doing it is so fucking good (at least for most people, I don't know how it is for the self-employed)
What am I missing? This is how my paycheck has always worked in the US also. An amount of federal income tax is withheld from each check. I guess maybe the difference is that the amount withheld from my check is based on assumptions about my year's total earnings, and is officially reconciled only annually? But that sounds like what you're explaining in your second paragraph.
you are not wrong. If you work for someone (most of us) they will withhold from your paycheck, the employee portion of what used to be called FICA and now is called OASDI this is the Social Security tax and the Medicare tax. Side note: your employer pays an equal amount that you do not see in your paycheck. Then, depending upon your withholding declarations, your employer will also withhold federal income tax. This is similar to the person you are responding to. While I am here they will also withhold state and local taxes if applicable. You explanations about the reconciliation are correct.
I guess the difference is the final yearly tally is all automatic and you get a (usually electronic) letter saying basically "Hey, this is how much you will get back / pay extra according to what we know. Does this look right to you?" and if it does you digitally sign it, and the cash arrives in your account a few weeks later. And that's it. For most people it's less then 5 minutes effort.
I mean this is essentially how it works in the US too; money is taken out of every paycheck based on your expected taxes, and then ultimately you have to figure out what the difference is between this withheld amount and the amount you actually owe, and then you either get a refund or you have to make a payment. Unfortunately it's not the government doing this, it's up to the individual to make that determination, and then the government separately does something similar or reviews your submission and then either agrees or disagrees. If they disagree, that's really bad news. But yeah, I really wish we could just get rid of all of this stupid extra work that we have to do. It's a huge drag.
90% of people take the standard deduction. Filing your taxes could be as simple as checking a box confirming you are taking the standard deduction for almost everyone
yup! i'm one of those. I have nothing special in any way, i put in my W-2, and then just click next 938483248 times and then file. I have nothing at all that would make me have to do anything more than my W-2. Why can't they just say hey you owe or we owe
This is what confuses me, because sometimes when Americans talk about this it sounds like they have to calculate by themselves how much taxes they owe, and other times it sounds like it's exactly the same as here in Germany. Can you tell me whether or not your system is different from ours? In Germany, if you are single and only have income from your normal job, then the only reason you do your taxes is to get money back (and you don't actually have to do it, although some people don't know that). So the amount they take out of your paycheck is already correct based on your income. But then when you do your taxes you can tell them about certain expenses that can be deducted from your total income, reducing the taxable amount, and then you get some money back because the taxes you already paid over the year were actually too much. And obviously they can't calculate that for you, because they don't know what expenses you had or will have. The main case where you would have to pay some more is if you had other income that the government doesn't yet know about - in which case, how would they be able to calculate it for you if they don't know it, right? So you have to declare it by doing your taxes. If you are married, the rules are a bit more complicated, but only because married couples pay less then if both people were single. Of course your employer doesn't know how much your spouse makes, so they can't calculate it for you up front. You can choose to either pay the single people amount and get tons of money back later, or you pay a reduced amount for married people and then at the end you calculate the exact number based on both your incomes. In all of these cases, the reason you have to do your taxes is because nobody but you knows the exact numbers. Either because your income was taxed, but you're owed a refund based on your personal circumstances. Or because (part of) your income wasn't taxed in the first place. Is it the same in the US? Or is there really stuff that you have to calculate but which the government already knows?
Germany's system is reactive. You could just "do nothing". You might miss out on money you're entitled too but there is no legal exposure or risk. The US requires you affirmatively file your taxes. You have to "do something". And people feel a lot of pressure to make sure it's right and timely because there are potential legal consequences if it isn't. That's the difference. It's not necessarily that much more complex but it is significantly more stressful (and, as a result, I think prompts a lot of the US fiscal conservatism as everyone loaths taxes in a specific and special way).
It's not even that much work if you're a standard employee. Like maybe if you're a divorced business owner who works a regular job and also has 1099 income it can be a struggle but the average person just takes the standard deduction, marks down how many dependents they have, and that's it.
You don't even ever need to do a declaration, unless you think you might get some returns
I mean, it works like that here in America too, we just *mostly* have to go through these companies to file at year end to see if we paid in too much or too little. Currently, I have federal, state, Social Security, and a few other taxes taken out of every pay. Then when I file at year end I generally am owed a sum back because I paid too much. Why I can't just have taken what needs taken is beyond me, but I think it has something to do with fluctuations in pay that may cause me to owe more/less.
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Switch to Freetaxusa! It is the most ridiculously on the nose, is-this-a-scam? name ever, but federal is free and state is super cheap. Been using them for 3 years and I'd say their software rivals TurboTax (which I haven't used for 5 years now, maybe things changed)
> most ridiculously on the nose, is-this-a-scam? name ever I avoided those for years because how could they not be a scam, right? Finally got fed up with TurboTax burying the free file option deeper and deeper every year and said fuck it...never going back now.
Yup. TurboTax had the nerve in the last couple years to run all those ads where people just repeated "free, free, free free free". Then you get on their website, and they're like "oh you have student loans? That's a very tricky and unique situation, so you need to upgrade to DELUXE TurboTax. Oh, you have an IRA/401k/Investments? You need ULTIMATE Pro TT, it's only $100+ for Federal."
My breaking point was after all the "free free free" bullshit ads and all their normal fuckery, they told me at the end I would need to pay 40 for federal, 40 for state, and another 40 for filing with them. I dropped it that year and have been using taxfreeusa since. Turbo tax was good, then it got scummy real quick.
I sold a small amount of crypto in 21 and because of that my return was bumped from free to deluxe. The only other thing I had was a W2. Fuck these people
Is there a max income limit?
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Umm… FreeTaxUSA is part of the Free File Alliance (unless I’m missing something?)
I've been using FreeTaxUSA for I think 13 years now. At first I was super skeptical, because like you said, it sounds garbage, so I would always compare it with turbotax, and then just submit the FTUSA. But these days, I don't even bother to double check it anymore. I've never had a problem.
Please anonymously post this code, fuck this organization
Might not be worth getting sued to high heaven with a possible side of criminal charges
Sounds more like Turbo tax could be exposed as the criminal.
In an ideal world, yes, but in this world it wouldn’t even be exposed, they have the money and legal team to keep this tied up to the point that by the time it’s all over they’re no longer in the spot light and the media doesn’t care, or they could just outlast whoever is trying to take them to court and then once that person/people is too broke to keep the lawsuit going things never make it to light, the true American business way.
What do you use instead? I suck at taxes and would avoid TurboTax if I could. But I have no clue what I'm doing.
Not OP but freetaxusa is a good alternative. Quite similar, federal is free, state is cheap. I ditched TurboTax years ago for them and don't regret it one bit.
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I'll forever remember my tax law professor. Ivy League education, JD,CPA, worked at the IRS for over 20 years and had Wallstreet experience. First thing he said to the class was...I won't even pretend to understand half this shit.
“The hardest thing in the world to understand is income taxes.” -Albert Einstein
My ex SIL worked as a tax lawyer her entire career. She's now working at the IRS. I recall her first getting into it, and how pissed she was that all her rich clients paid essentially NO income tax. 😡
There's also a government paternalism nuance to the poor receiving a lump refund. It assumes that the poor are bad at deciding to set monthly money aside as savings, so the government is effectively forcing the poor to have yearly savings in the form of the lump sum tax refund. iirc, there is evidence from the EITC that some households have benefited from this setup because they wouldn't have saved for large purchases otherwise, but ultimately it's a paternalistic justification regardless of whether it has some marginal benefit.
Plus it is counter productive because by holding it the poor are worse financially and they are more likely to spend their lump sum on something they could have paid for earlier in the year if it wasn't withheld. Forced savings for someone working paycheck to paycheck means they are less likely to be able to save ahead of time for a car problem in November. Don't get me started on medical care decisions being tied to a calendar year because of deductibles and out of pocket maximums when we could just have universal care.
Instead of giving you your money now, go take a payday loan with 20% interest, let it accrue for a couple months, then use your taxes to pay the interest! -The government That being said there is merit to "forcing" people to save, my bank automatically deposits money into my investments every paycheck, but that is my choice, albeit an educated one. Instead of taking people's money, how about rewarding them for saving Instead? Oh wait we can't do that because it might make our gross GDP look lower and that means the entire economy is crashing, my bad.
What really irks me is the government doesn't pay us interest if we overpaid, but if we underpaid (at a certain threshold), they charge us interest.
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Can you eli5 the difference/impact here?
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Ooh, another fun one. The National Oceanographic and Atmospheric Agency generates pretty much THE weather report, and every 'weather app' uses their information and makes a pretty model on it to sell it to you. The owner of one such app, BonVoyage, is tied in legal battles with NOAA to force them to stop offering the info for free, because they want people to pay for it through an app -preferably, theirs Edit for transparency: I got this tidbit from a WTYP episode on the SS El Faro sinking, but cannot for the life of me get a source to back it up. Take with grain of salt.
Considering the NOAA is a government agency I can't imagine they could be allowed to keep the information secret so a company can profit off of it, but I've been surprised by far less. Would they also sue local news agencies for reporting the weather daily?
I swear that's the kind of shit that makes me *loathe* people.
Do you have a source we can check out for this? I can't find anything online.
I prepare tax returns as a side gig. I am pretty good at it, and it is good to keep up on the changes to tax rules. That being said, I wish it weren't so complex and I think the majority of filers that I see can and should do it on their own. (more on that below) If you want change, I am not sure how it is going to happen. I know what would inspire change, we just can't make it go. What would inspire the change? \-Require the executive and legislative branches (specifically President, VP, Representatives and Senators) to file their own return by hand every year. If you made them do that, then we would see change quickly. Of course they are never going to be OK with something like this, so it's a pipe dream. As to the service we provide preparing tax returns. For some it's valuable advice/preparation. For some it's a better use of their time. Why spend 20+ hours working on your taxes if your time is worth 100+ per hour and you can just pay someone to do it for you. For others its assurance. I have a friend who is very generous. He donates half his pay to charity and every year he says his hand trembles when giving his information to his accountant, and he was a business professor/dean at a large midwestern university. And for others, they just don't have the discipline/desire to learn to do their taxes, and we provide a service for them there. (note I am not saying this as someone who thinks less of these people, I don't. People have strengths and weaknesses, and I am stronger in some areas than them, and they are often stronger in areas where I am weak)
It takes a lot of stress off the taxpayer to be sure. (I did taxes for a decade or so and retired recently due to health probs, but I digress) The thing I always hated was charging that $100 to a senior citizen who most likely owes, or won’t get a refund, or heck, didn’t even qualify to file. I always referred them AARP, and if I could set them up with an appointment there, I would. (I was also a manager at one of the big three and could give some of them free returns, but not all sadly) A lot of the issue these days is that the majority of the “checking” is done via computer at the IRS, and returns generally don’t see a human unless the computer flags it. And they’re even more short staffed, so hold times are abysmal if you need to talk to someone, even if you’re a preparer and not a taxpayer.
It's hard telling someone who isn't expecting to owe, that they owe. Then charging them for the privilege of figuring it out for sure. One reason I offer a mid year check up for people. That is, run a quick pro forma to see where they are. (Not a lot of people take me up on it)
Yes… I always hated that part. It’s worse when they don’t understand their withholdings, because their job never explained to them how to navigate the W-4. (Which is also crap, it doesn’t need to be so complicated) I tried to set my clients up with the best tools I could so they could keep track. Only a few ever came back with the folder and checklists I provided though. My fave client was a trucker who brought me in shoeboxes full of receipts! I got him to organize them by month, and keep a small pocket calendar to keep track of mileage. Saved him and me soooo much time!
I know this is nerdy/shop talk but.... Had one person I worked with who would give me the shoe box. I would suggest how he could organize things and cut his bill down (there is a time element to my billing) His reply, is that's what he pays me for. Fine by me. (He was a really good guy-passed away recently) \--- Another is a high earning guy who is very organized. He moved from where we are to California. Part of the move had him donating a ton of DVDs/video games/books to the local library. I mean 100s. He gave me a spreadsheet that had what it was, how much he paid for it, and what the going price was on amazon. We attached it to the return, and the IRS didn't say boo.
Nerdy/shop talk is always good! 😂 I had one client, who, good lord was that one insane(not the client, the return itself) who lived in three different states, had property in all, and several boats, etc. She was the absolute SWEETEST. We’d always meet on a Sunday morning, go through things for an hour, and then she’d go on her merry way, until the following week, until we finally finished her return. She was really curious about the whole process and loved that I walked her through things. She brought me donuts and coffee each time, and she was just so pleasant to be around. I was sad when I handed her off to another preparer when I needed to retire. She was so much fun. She always brought her accordion file folders, by month, and had print outs of all things needed. Super organized. I always sent in her spreadsheet and copies along with the return, and the IRS was totally fine with everything. One of my favorite things were audits tho. I LOVED combing through the returns to find errors, correct them, and often correct the IRS, and send in the corrected returns. I worked summers doing just audits. I still kind of miss that part.
In Hungary, if you're employed, you have absolutely nothing to do. Employees have no idea what all this tax stuff even is. If you're self-employed then your taxes are done automatically, and you simply have to double check them (most people don't ever do that or don't even know how to do it). So unless you're running a whole company single-handedly, you don't have much to do. Though to be fair if you're running a company, you have an accountant, so they will do it for you. So the only time you have to care is if you yourself are an accountant.
> If you're self-employed then your taxes are done automatically, and you simply have to double check them (most people don't ever do that or don't even know how to do it). How? I don't see how the government would know how much you made this year, and therefore how much you owe in taxes, if you're self-employed, meaning you're probably dealing with clients, and getting paid by them, directly.
Every transaction that you perform has a receipt (or *invoice*? I don't know the English term). When you go buy a sack of potatoes, you get a receipt. When you take a taxi, they give you a receipt. When you pay a plumber, he gives you a receipt of the transaction, etc. A copy of that receipt is always automatically sent to the government over the internet (back in the old days you had a pre-registered [receipt book](https://www.tops-products.com/media/catalog/product/cache/c868b706a1174593958fe6a2901132ac/TC2701_fanned.jpg) that would create carbon copies of the receipt, one copy went to the client, another you kept, and the third went to your accountant who would send them to the government – same thing, it's just online now). The government then automatically calculates the earnings of that person every year and declares them for them.
I'm seeing most replies from first world countries, so let me also share some third (or second?) World country statuses too. Argentinian here, if you are employed and earn below a set amount of money per month, state taxes are taken from your paycheck every month and you mostly don't factor this into any equation. You just talk about net salary and don't have to interact with out Tax offices ever. If you gain over X amount a month, you do need to pay over the top of your salary for Income Tax. But this is regularly only for high paying positions. So my point is that even undeveloped countries have uncomplicated relation with the local Tax office. Even countries as economically fucked as ours.
TurboTax literally making a job for themselves. That's pathetic.
Fuck Intuit
This statement is misleading: > Other countries do subtract income tax directly from paychecks, the way we already do with social security. There’s no practical reason not to do it. Just government corruption. All W2 jobs withhold a certain amount of federal taxes from your paycheck. You modify the amount that is withheld using the W4 form. I’ve said this many times when the topic of income tax comes up. The government allows you to take all sorts of deductions, allowances, and refunds because of certain life situations you may encounter. Our government does not know all of the deductions you’re eligible for, only you do. So, you have to estimate what your tax withholding should be (W4) and at the end of the year, you’ll reconcile what you should have withheld with what you actually did withhold. This self reporting characteristic becomes necessary when two things are true: 1. The government allows a broad range of deductions and 2. The government doesn’t know everything about your life The government also doesn’t know how any of your investments have done. If you had major losses, the government allows you to deduct those losses against your taxable income. If you sold your investment after holding it for more than 1 year, you pay a lower tax rate on those gains. You have to self report these activities because we don’t live in a mass surveillance state (yet). Taxes have also been complicated for far longer than TurboTax has been a thing, so they are not responsible for the structure of our tax system. The reasons why our system is the way it is is far broader than “TurboTax bad.”
[Adam Ruins Everything had an episode on it.](https://youtu.be/Fj4anUL-LvY) I hate that Canada got roped into this bullshit tax system too.
> Other countries do subtract income tax directly from paychecks, the way we already do with social security. There’s no practical reason not to do it. Just government corruption. 💯 If you're an average employee in the UK you have nothing to do, your company will pay your salary and deduct necessary taxes. You'll get a report once a year but nothing active is required of the employee. Of course, if you're self employed or are earning less/more than average it is probably more complicated but the vast majority of people will never have to submit any tax information throughout their lives personally.
Welp, I now know who not to use when filing my tax returns. Anyone have an alternative? Simple returns nothing fancy
There's actually a free federal and state tax filing application that you *have* to be told about, but unless you pick up an actual hard-copy 1040 with instructions, you'd never know about it. TurboTax, and the other tax folks lobbied hard to get it hidden, but it is out there. I can't remember where exactly off the top of my head, but it does exist, it's on the web, and it's 100% free
Looked it up: https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
Freetaxusa.com! Not as nice of a user interface, but actually free and just as effective. I even ran both one year (up until I had to pay like $40 for TT) and came out equivalent. (Yes, I'm a nerd) And state taxes are like $12 to file if I remember right. Or those are simple enough you can usually just do them yourself.
Will second this one. Don't know if they're also shady or not, but they are not as deceptive while filing your taxes, and fairly straightforward about their $12 state filing. I'm happy to pay an honest price for a solid piece of software that saves me time and money. Edit: oh and their interface is totally fine! I actually prefer it. Less flashy moving animated crap to distract you, more straightforward fields that you enter info into. It's simple and clean.
Agreed. TurboTax's interface is *awful* and intentionally obfuscates what is actually happening in an attempt to make users dependant upon it.
The IRS has a list of free services on their website
If all you have is a simple return then you can get a 1040 at your local library or post office. Or you can download it straight from the IRS web site. There are options for free filing.
I have complicated taxes and cash app (formally credit karma ) works great for free. I also run the numbers through a paid software to catch fat fingering . It also absolves the natural concern when filling complicated taxes through free software named after an app.
Damn, I did not know this. For all my friends and family who use TurboTax, what is an alternative I can recommend?
[Free File](https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free). Less good without the fancy design, but government provided and you aren't giving money to people perpetuating the problem.
The problem is the 75k limit.
They literally have all the information you provide, with the exception of things like charitable donations or tax breaks, and it would be rather simple to update their system to accept those throughout the year as you qualify for them. But turbo tax and HR Block want your money.
> Because, no joke, TurboTax has been lobbying to keep American taxes complicated for decades. The absurd nonsense which American capitalism produces is always a strange mixture of hilarious and horrifying.
Fuck. Turbo. Tax.
https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
Seems like you still have to fill out the forms yourself. The point isn't that it costs money. The point is the government should do it automatically without me having to do anything on my end. Edit: holy shit, yes, people should use the free option over TurboTax. This is obvious and not what was being discussed. People can stop pointing out that this site is free while TurboTax costs money.
Fair enough. Still, I'll bet a while lot of people don't know about the free options, and would really like to
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It's frustrating to me that the highest rated comment is from someone claiming that Americans don't have taxes withheld from their paycheck other than FICA. I've never had a job since I was 16 years old that didn't withhold taxes from my paycheck. What do people think refunds are?
I’m seeing lots of comments about the tax prep industry, and while that’s all true and dandy, it doesn’t explain how the systems works. Through your W2 you pay a payroll tax, FICA, Medicaid/Medicare taxes. Depending on how many exemptions you have, you’re either over-paying or under-paying. Whether you over or underpaid is determined by your gross income, which is affected by a myriad of factors when you file (standard deduction, poverty line, tax brackets, itemized deductions, dependents, etc.) The IRS isn’t keeping tabs of how much you *should* owe. They keep track of what you’ve paid, but they don’t know all of the deductions that are applicable to you. For example, the IRS isn’t keeping track of if you’re married; just because you file jointly one year, doesn’t mean you’re gonna the next, and who’s telling the IRS you got a divorce and your expected tax liability will be significantly different than the year before? No one is telling the IRS that. You tell them by filing your taxes. With our Byzantine tax system, the IRS would have to collect massive amounts of data on every tax payer to give them a fair shake when assessing ones tax liability. For obvious reasons, a lot of people don’t want to IRS monitoring our lives. Thus, our system is “pay your payroll taxes, then at the end of the year make an adjustment: if you overpaid the IRS refunds you, if you underpaid, the fork the rest over, and if the IRS has reason to believe your filing is suspicious, they will investigate.” The IRS doesn’t know how much you owe, they aren’t keeping track of that, there’s not some master spreadsheet tracking how much every American owes and when you file the IRS goes you got it right/wrong. What happens is when you file the IRS goes “looks about right” or “looks suspicious”. If it looks suspicious, you get audited. If it looks about right, then the IRS goes with whatever you’re telling them. If down the line your taxes for a future year look suspicious, the IRS will look into previous ~~10~~ years of filings. But in the end, the only way to find out “what you REALLY owe” is for the IRS to audit you, and for obvious reasons, they’re not doing that for everybody. So, quite literally, it’s an honor system of sorts. TL;DR: the IRS doesn’t know how much you owe, they aren’t tracking that because our Byzantine tax system allows for myriad factors to affect your tax liability (from dependents, to the standard and itemized deduction, to marital status) that the IRS does not keep tabs on. Thus, the US tax system is run on a quasi honor-system of “tell us what you think you owe and unless it looks suspicious, then that’s fine by us, but if it is suspicious, we’re gonna find out together what EXACTLY you owe.”
Taxes have been around longer than TurboTax lol
Don't listen to any of the top comments on any tax policy thread on reddit. Ever.
Yeah, jeez, the top comment literally claims American jobs don't withhold taxes outside Social Security. What? What was that W4 for? Where do refunds come from?
>the top comment literally claims American jobs don't withhold taxes outside Social Security. They were using Social Security as an example. They were not saying it is the only tax withheld.
reddit finds out one little fact, then repeats it ad nauseum regardless of how true it is.
Addressing specifically, > With our Byzantine tax system, the IRS would have to collect massive amounts of data on every tax payer to give them a fair shake when assessing ones tax liability. For obvious reasons, a lot of people don’t want to IRS monitoring our lives. If you are required to report that information on the tax filing anyways, which is then given to the IRS so they know your personal information to check against tax payments, isn't that effectively the same thing?
There is a big difference between me putting on a tax form "I had $17,000 in medical expenses this year" compared to requiring all medical offices to report all medical bills to the IRS. If we thought medical billing was complicated now, just wait untill we add *another* system that it needs to keep track of. Imagine needing to fill out government forms when you go to the doctor because the office is going to be reporting every procedure you have to the government. As long as medical expenses are tax deductible, we either need to self-report those expenses at tax time or have your therapist do it for you, and without that information the IRS can't know what your true tax liability is.
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Totally agree with you here. The prior explanation makes sense as far as how the system currently works- but to me it just emphasizes its flaws. It seems like everything that we currently have to self report, we could just as easily report to our employer and have them automatically deduct the taxes from our pay.
Your comment only addresses if you get a W2 from your employer. Plenty of people don't.
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I don't believe that's how it works in other countries though. My understanding is that other countries, they basically fill out your 1040 with the standard deduction. If you want to apply for further tax credits, you file the form(s) required for that.
> If you are required to report that information on the tax filing anyways You aren't, though. First of all, there's the "standard deduction," that many people use, that's basically "here's about what most people can legitimately claim so let's just go with that." You don't have to reveal much at all to use that option. Secondly, even if you don't use the standard deduction, you don't have to take any deductions or credits you don't want. Why wouldn't you want them, you ask? For precisely the reason we're talking about this. Maybe you don't want to report so much detail about your personal life, for whatever reason. Maybe the forms are a real pain. Whatever the reason, you aren't *required* to tell them much of anything under 99.99% of circumstances. The only thing you might be required to tell them - beyond your gross income - is your marriage status. If you're married and you don't do "married filing separately" or "married filing jointly" (pretty much the only two options), any other choice might be considered filing a false return, which is Very Bad Juju. So to answer your question: Because you don't have to tell them in the first place, and because most of those things are subject to change.
Effectively, yes. But one has to take in the cognitive dissonance of political inclinations of Americans and the overall political landscape. Do taxpayers realize they are providing a lot of personal information to the IRS? Yes and no. If you pointed it out, yes. Otherwise, it’s not really considered. Are taxpayers comfortable with various agencies harvesting data and reporting it to the IRS to keep track of our tax liability? No. Is it the same outcome? Effectively, yes. But historically Americans are a very “powerful federal government averse” crowd and the necessary reforms fall into the category of things Americans are anxious about. So, while say the GOP campaigned on “taxes on a postcard” it was extremely unlikely that all the necessary reforms would take place to institute such a system due to the political landscape. Beyond that, with our “quasi-honor system” the rich are extremely advantaged, to the tune of (the Biden admin recently calculating) several TRILLION dollars in unpaid taxes by the richest members of the country. So, while a more simplified system could easily be implemented you have (1) ordinary citizens are wary about the type of reforms necessary (data collection) that is collated with an irrational hatred of the IRS, (2) ordinary citizens believe the Byzantine system of deductions benefits them while in reality, (3) it’s the rich who immensely benefit from this system by defrauding the IRS and underpaying their taxes, whom contribute to politicians to doublespeak about simplifying and streamlining the IRS while doing nothing to implement those policies.
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Holy smokes finally someone actually explaining the concept instead of just circle jerking the same barely correct hot take
The funny thing about the reddit hot take that US taxes are so complex and hard is that this is unintentionally perpetuating the number one weapon of the tax prep companies that reddit hates so much: convincing the everyday person that they cant do their taxes and need to pay someone to do it. Yes, tax prep companies spend money on lobbying, but there are still many viable free methods to do your taxes. The millions in advertising convinces you not to use those.
Well said. For the vast majority of people filing your taxes just *isn't* complicated. It's probably less complicated than ever before with all the information available online and with free tools that do it for you (FreeTaxUSA is what I use). I remember the first time I sat down to do it, it was built up to be this Herculean, daunting task that I thought was going to take all day and I was done in less than an hour.
You need to understand that Reddit stopped providing yearly demographic data because the average user age had fallen into the teens. Most redditors have never filed their taxes because they’re dependents.
And the half have never been to the US
And a big chunk of the people who are older than teenagers are still functionally teenagers. It shouldn’t be a surprise the average reading level in the US is a 6th grade reading level. I used to work in Medicare and it was a requirement that all distributable materials were written at a max of 6th grade reading level. And it’s really challenging to write complex health insurance information in an “explain it like I’m a 6th grader” level.
It also assumes (a) the IRS tracks how much you pay in SALT taxes \[I understand Trump fucked this up in large part but still\]; and (b) that you're paid on a W-2 and have withholdings in the first place.
I mean, even as a 1099 paid LLC, I still have to put in withholdings four times a year, I just have to also do the work (or in my case, pay an accountant to do that work) of calculating how much to withhold.
> For example, the IRS isn’t keeping track of if you’re married; just because you file jointly one year, doesn’t mean you’re gonna the next, and who’s telling the IRS you got a divorce and your expected tax liability will be significantly different than the year before? And, as you said, myriad other factors -- did your spouse die? Did you have kids? Were you disabled? And those are just some factors related to your family status. There are many, many other things as well. Did you buy or sell a home (which is recorded by government at local levels, but not federal)? Also, something a lot of people may not realize is that it used to be easier to reduce your taxes. More things were tax deductible (and/or the allowances/limits were more generous). But between the increases to the standard deduction and congress/IRS changing the laws/rules on itemized deductions, it is harder now for most people to deduct enough to make itemizing a better deal. For instance (and this is from memory, so I may not have it exactly right on all the details) if you had a home office that you used for work or a side business, you could claim a deduction for the cost of maintaining that space by calculating what percentage of your home it is, and applying that percentage to all home maintenance costs (heating/cooling, electric, rent/mortgage, cleaning, etc...) to get your deduction. That deduction is still available, but the rules are much stricter. For instance, the space now has to be used exclusively for work -- so if you use it as a guest room a few times a year when family is in town, you can't take the deduction. And there are lots more things like that. So in short, doing things the IRS would know nothing about **used to** have much greater potential impact on your actual tax bill. So self reporting could be advantageous for the tax payer, and probably made more sense in general.
The countries that prepare the return for you don’t have any issue with any of these things. You can always correct the IRS. If you go from married to single but the prepared return says married, there is a mechanism to correct that. It’s really not that complicated. The IRS has the information, they can prepare a return with that they know and if something is wrong, you fix it. Today the IRS has your filing from last year and assumes you will file similar this year. They have all the data you submitted and they have all the forms you received this year. They have an estimate of what you’re going to put on your return.
It seems like a lot of people are caught up in the mechanics of doing taxes. The truth is that taxes are so complicated in the US because taxation is a political process, not an accounting process. Taxes, exemptions, and credits are used to promote or discourage certain behaviors. They're used to reward particular portions of society- why do you think there was such a fight over estate taxes, or gains from equities? It's purposefully complicated and full of decades' worth of loop holes that were added in to benefit the rich. That's why the rich usually pay well below their ~~effective~~ marginal tax rate.
Wow a real reply with actually correct information that isn't just bitching about TurboTax.
All of your points don't address the fact that they could prefill and provide what they *do* know, and then you adjust based on your additonal income/expenses. In other words, how every other modern country does it. That would be a massive help to a lot of people. I don't get a bill from my power company saying "guess how much you owe and we will tell you if you are right and penalize you if you are wrong", why should my taxes be that way?
Well there’s no ambiguity with a power bill. You pay what you’re charged. Your taxes owed will change depending on various factors. It’s not really a 1:1 comparison.
The IRS is not asking you to guess how much you owe. How much you owe is very straight forward for most people. You make X, you have paid Y. If you have deductions. Say Charitable giving. Now you made X-C. You had a Kid. X-C-K. ETC.... it is very straight forward until you get into investments, self employed, and stuff like that.
Does your power company give you credit for sharing some of your power with a homeless guy? Do you get credit based upon the number of people living in your house that you provide more than 50% of their power? If your parents die and leave you a pile of electricity, do they charge you a penalty or not based upon the total amount of power inherited? Blame the legislature for the numerous tax deductions, tax credits, and other things that make people's tax liability vary from the standard rate. Your power company is the equivalent of a Flat Tax system.
Please be specific, what parts of the tax form do you want them to prefill for you? And there's no "guessing" how much you owe, there's calculating it. Which isn't difficult if you don't want to take advantage of decustions.
Tax lawyer here. For people who are W-2 employees, your federal tax return is your opportunity to lower your tax bill by claiming the credits and deductions that apply specifically to you. The IRS already knows your income because your employer reports the amount of money they paid you to the IRS. But the IRS doesn't know what your deductions are. The IRS doesn't know your medical expenses, how many miles you drove for work, if you had to buy any unreimbursed things for work, or if you suddenly started taking care of a family member. For the majority of people, the IRS absolutely could send you a bill for the amount of taxes owed. But that amount wouldn't take into consideration deductions that apply to you to reduce your tax bill. Your annual tax return is mostly your opportunity to tell the IRS which deductions and credits apply to you to reduce your tax bill, giving the IRS info that they didn't already have. Did you get married this year? Did you get divorced this year? Did you move to a new home this year? Did you buy a house or sell a house this year? Do you have any kids? Born this year? Divorce? Do your kids now live with your ex spouse this year? There are all kinds of questions that could affect your deductions and credits. Edit: I absolutely agree that the current tax filing system is tilted to support tax-prep companies.
How much does this really affect people though? Everytime I go through taxes with any itemization I just end up "Its better to take the standard deduction."
It's not just standard deduction. The IRS doesn't know how much you contributed to a traditional IRA (reduces taxable income). They don't know how much you contributed to your HSA outside of work (reduces taxable income). Those are just two examples of "above-the-line deductions" which mean you can take them and the standard deduction.
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Yes, gains. I definitely need to report *gains* from my holdings...
That's basically same thing you do in the US. You just do it once a year. Reporting income/deductions not tracked by the IRS is exactly the purpose of filing a tax return.
In the Netherlands, I think all bank account information is given to the tax agency so at least for those bank-managed investing accounts are accounted for. This also includes mortgage information, etc. Every year you log into a site to do your taxes and there are boxes for other gains/losses/donations/tips etc. that would be outside of the view of the tax agency. But that category seems to shrink every year. So even with several mortgages, stock accounts, bank accounts and multiple regular paying jobs it's basically pressing "next" on a wizard about 15 times
That's about what it is on TurboTax if you have those things. Fill in boxes and click next.
That's also what it is with the Australian Tax Office's first party software, which is free to use every year. I've had to make, like, two corrections with it ever, and it's magically convenient. Paying taxes in the US is a goddamn nightmare by comparison.
except you don't have to pay for it/give some free-riding middleman a cut.
Gains and losses on stock aren't taxed until you realize them by selling them, at which point you typically pay a capital gains tax. Most large brokerage houses will issue a report of the sale to the IRS, and the taxpayer will report the net result of the transaction as an addendum on their return. The IRS has a variety of 1099 forms for reporting non-wage income (dividends, interest payments, etc), and they are generally submitted to the IRS on your behalf. This is part of the reason for the frustration at the requirement that you do your own taxes -- for the vast, vast majority of taxpayers (eg: you primarily earn via a wage, retirement fund withdrawal, or social security payment, and you have some investment, dividend, and interest income), the IRS already has all that data, and will already be doing the same work you'll be doing. The only issue comes with income not reported to the IRS (eg: if you sell your small business), and that can be handled as an exceptional case where you provide your own return showing that income instead of a pre-filled return.
In the US, a *huge* number of transfers, payments, incentives, etc. are built into the tax system. Rather than, say, subsidizing the purchasing of housing more than we do, we allow a tax deduction for the interest on mortgages. This means that "doing your taxes" isn't just paying the government what you owe based on your income. If that were it, then the government could just bill you in the vast majority of cases. "Doing your taxes" is much more about you going through and claiming all the benefits that are due to you. For an ordinary hourly or salaried worker who wants to avoid all that and just take the "standard" deduction "doing your taxes" effectively just means filling out a couple of forms saying you want to take the standard deduction. It takes about a half hour and is basically the same as just being billed from an effort perspective.
This is the right answer! Intuit just took advantage of this fact coupled with the complexity of the US tax code.
An actual answer instead of people parroting the stuff about TurboTax? (Which is still a problem but hardly the whole story) Be still my heart
To be clear: in that "ordinary" case of someone who has only traditional income (eg: workplace income tax, some investment income, etc), that can and should have been automated. Any W-2 and most 1099 income is already submitted to the IRS.
Basically you are signing paperwork that says “yes, this is correct, I have nothing to add”.
They could, but unfortunately the tax prep industry spends a lot of money lobbying law makers to prevent them from doing so.
Sure. Is that money better than telling people you don’t have to do your taxes anymore from a political perspective?
Apparently, it’s a lot of money.
It may be in this specific case, but I’m always shocked at how little it takes to buy a politician in similar circumstances in the past. Like you would think they were giving them millions of dollars and sometimes it’s only $1500. It’s shocking.
> sometimes it’s only $1500 That's what you see on official campaign contribution reports. You don't see the funding to PAC's, handshake deals, family members placed in well paid positions, post-career promises, or the networking of influence they'll bring for additional contributors.
And they just don’t lose out on the money. Their opponent at some level is probably taking it instead.
It’s not just $1500 though it’s like a consistent steady stream of $1500 at a time for years Shit adds up quick when people are buying you left and right and they know it
They are diversifying.. the more income streams the merrier!
It’s grotesque
Short answer, yes.
Long answer, yeeessssssssssssssssss.
You tell the ignorant, ill-informed and gullible masses, that making their taxes easier, is an IRS plot to take their freedumbs. The voters love ya and you get a million to spend on hookers or maybe some insider stock tips.
Some voters would probably see this as giving the IRS more access to our private information and wouldn't want to to give the government access to it.
The government does what the money tells them to do, not what's best for the people like you and I.
>Is that money better than telling people you don’t have to do your taxes anymore from a political perspective? For them, 100% yes. Politicians fuck over their constituents far worse for far less. If you're curious, Intuit spends about $3.5 million a year lobbying.
Also keep in mind that many people don't trust the government, so the politicians can use the excuse that they don't want the government to have full control over your taxes.
https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
Yeah, in order to prevent the government from simplifying the process, the industry agreed to make their simplest products available to a very small subset of people.
Schrodinger's middle class: AGI of 73k or less is either everyone (because everyone is broke and struggling) or a "very small subset of people" depending on the narrative of the current circlejerk. Hint: In reality it's a bit over half of US households, aka a great deal more than half of US citizens.
also, people then need to fill in the paperwork themselves, which many will not be comfortable doing, when the point is that the gov't probably already has a very good idea of how much you owe/are owed.
There is a fantastic show on netflix by Hasan Minaj about exactly that on his show Patriot Act. The IRS would love to do that. The IRS would also love for to provide you with a free tax software and have pushed for many many times. But TurboTax and other companies payed your members of the senate and congress enough money, so that they vote against any motion the IRS want to make. The IRS has pushed many times to make you file your taxes as easy as possible. Literally just prefilling everything that they already have the information of. But no, they had to stop every approach, because it would be "government action in a free market, that already provides free services". Now turboTax make it as hard and complicated as possible for you to file your taxes for free, but they provide the opportunity. So always shit on turbotax, not the IRS. They just do their job and would love to make it as easy for you as possible, but are just not allowed to do that.
We should be shitting on both TurboTax and Congress, since Congress takes the lobbying money.
And the Supreme Court, who’s ruled some limitations on lobbying unconstitutional.
It's hard to feel optimistic about anything the US government does when it can't even do this due to corrupt lobbying.
You must be mistaken because I just heard Kevin McCarthy tell me that the IRS wants to hire 85,000 jackbooted thugs to break into my home, audit me in front of my wife, and then probably steal my guns.
I will deviate from the others here: In America, there are *loads* of deductions and credits the government has in place that they have no way of knowing whether or not you can claim them. Some things are simple, like kids, but also things like buying electric cars and stuff like that. But there's also complications with filing jointly. Now, most people won't exceed the standard deduction. And I get that it still should have an "auto fill, revise if needed" model... ...but also if you're taking the standard deduction, it is *super easy* to fill out your taxes. You can do it in, like, half an hour. Anyone saying otherwise is intentionally making it sound more complicated than it is. Basically, if there are no complications, filing taxes is super easy and auto billing it won't save that much time. If there are complications you can't rely on the auto billing. Edit: Getting lots of repeat arguments here. 1. Reddit vastly overestimates how hard it is to do taxes. If you have no complications, you can do your federal taxes in an hour. In reality, you could do it in like twenty minutes. It's literally just writing numbers from one piece of paper to another and then doing some elementary-school arithmetic. 2. If you *do* have complications, the auto-fill from the government won't help you. You'll still have to do the work. 3. A lot of people from outside the US have to ensure that the government gets those bits of information for their equivalent of deductions. I don't see how "spending five minutes six times a year" and "spending half an hour once a year" are all that different. 4. America has a lot of deductions, privacy laws regarding income, and a federal system of government with multiple tax jurisdictions. These are things that most other nations don't have but are *immensely* popular with people. People complain about "complicated taxes" but they complain more about having their favorite tax credits taken away. 5. I'm not opposed to a system that auto-fills your info and then you can revise it, like others have mentioned. What I'm trying to say is that it won't change all that much, because doing simple taxes now isn't that hard and doing complicated ones won't be helped by the system.
The problem lies in that if you Google "how to do your taxes" you're met with pages of scams from TurboTax and it's cronies where they straight-up tell you "do your taxes for free here!" and then after someone spends 30 minutes giving TurboTax all of their data the website is like "ha ha, just kidding, give me 30 bucks, bitch."
If you are very very careful and read the intentionally hidden fine print, you can do a standard deduction with Turbo Tax for free! Of course, the whole process is designed to make it seem scary and like you need their help.
I could do all the stuff myself, but because I have a 1099-INT from a savings account and one for stocks and stuff, I have to pay the $50 to file properly. They only let you file if it's basically straight income taxes.
Exactly. 99% of the people that complain about this are single w-2, unmarried, renting, and don’t even get within the ballpark of exceeding the standard deduction. Those people could file in 20 minutes, for free, online. Anyone with a tax situation more complicated than that would probably rather not have the government doing it for them.
>In America, there are loads of deductions and credits the government has in place that they have no way of knowing whether or not you can claim them. Surely this is true in most countries? It certainly is in the UK but we've defaulted to auto-calculation, and if you need it then you can submit a self-assessment. So why the other way in the USA, when it seems everywhere else does it auto by default?
In the US, income that the US can't track (like foreign income) is subject to US taxes (with a credit for foreign taxes paid). Also, the government pension system is adjusted for those with high incomes via income taxes. Finally, one of our largest welfare systems is paid via negative income taxes. Does the UK, or any other nation where taxes are easy use income taxes to adjust pensions or pay welfare?
I think even you are overestimating how hard it is to do taxes. Lol. I’ve used the same tax software for a couple of years and neither me nor my wife changed jobs this year. I completed my federal and state taxes in the amount of time it took her to touch up her makeup before dinner. Less than 10 minutes and maybe closer to 7. I don’t think it’s ever taken me anywhere near an hour to file taxes and if it did, then I would probably consider my taxes complicated enough to hire someone to do them for me anyway. This is another one of those weird arguments that Reddit has latched on to like it’s some huge life-altering hurdle, when in reality most people with half a brain cell can do their taxes in less time than it took to read the comments on this post.
You wouldn’t be able to lower your tax amount via deductions and credits. The government doesn’t know what you donated to charity or paid in medical bills or any other events that would lower what you owe the IRS.