The tax preparation industry exists in much of the world.
Taxes are simple if you live in one place and only receive income from your employer. If you have multiple sources of income, connections to multiple countries, etc., things can get very complicated very fast. That's why the tax prep industry exists - and not just in the US.
That being said, the Internal Revenue Service could prepare the taxes of most Americans. A simple system of, "Here's what we think you owe, based on the information we have on hand - sign and submit if you agree" would work for most people.
> the Internal Revenue Service could prepare the taxes of most Americans
IRS Direct File[1] did exactly this. It apparently worked really well, and people liked using it, netting ~$20 billion in savings to the Americans that used it (roughly half of that came out of the pockets of the tax-prep industry).
Then, DOGE got to it and the new administration's IRS commissioner killed the program.
In Australia, if you work in multiple places and at multiple companies, it’s still trivial to file your own taxes. You log in to the government portal, where the collected amounts of tax from each income source, including bank interest, is listed. It can get more complicated if you have your own business but for the majority of people it’s easy and doesn’t require a third party.
Australia has a progressive tax structure, right? If you have multiple income sources how does each source know the proper withholdings? How do they know what deductions you'll be eligible for or are wanting to take?
If it works anything like what we've got in Norway, they take a rough percentage, and once every year when the taxes are filed, the IRS equivalent charges or repays the missing amount.
That's how it works. You indicate if you want the company to take the tax free threshold (you only want to do this for one job if you have multiple), and then you can also elect to tell your employer(s) an estimated taxable income and they'll use that. Otherwise they just assume your income from that job is your taxable income.
At the end of the year you file online and put in your deductions, which hopefully cover any other taxable income (capital gains, dividends, interest, etc.) if you didn't give your employer a higher figure. Then you pay if you're owing or get a refund if not.
I don't understand how these could be issues. They aren't in my country.
You're still responsible.
Tell each company how much to withhold.
If they take too much, you get it back when you file taxes.
If they don't take enough, you pay a penalty for having too large of a bill when you file.
The issues you mention exist regardless of how many employers you have, because you can have income that does not come from an employer (e.g. stock dividends).
This sounds the same as the US then. If you have more than one income source or you're planning on taking something other than the standard deduction you need to tell your income sources to change withholdings. If they take too much, you get it back when you file taxes.
What's the big difference? You don't need a tax preparer to do your taxes in the US, and if all you have is a normal W-2 income and a bit of bank interest its a pretty simple couple of forms to file.
It's hard to tell if there's much of a difference or not since I don't really know the US system (and I'm, in all likelihood, from yet another country different than GP).
The simplest cases, however, don't really require filing forms at all. The withholding process sounds similar, and when the time for filing taxes comes, you get a pre-filled return sheet with withheld taxes and your pre-calculated actual tax based on the information the tax office has.
Employers directly report income to the tax office, so that information is already included. Banks also automatically withhold taxes on the interest they pay and report it to the tax office. I think banks and broker companies usually report sales of stocks etc. made through them as well.
The same pre-filled return sheet includes national and local income taxes that have been automatically calculated based on your place of residence. (I assume this is more complex in the US due to different state legislations; here the tax legislation is the same everywhere even though local tax rates vary.)
If you don't want to add deductions (in addition to standard ones) and you don't have any corrections to make, you don't need to file any forms. The only things you need to do are to pay the difference if you owe something or to report your account number for a refund if they don't have it already. Otherwise filing in a simple case is a no-op.
If you do want to file for deductions or make corrections, you can do that with an online form.
And of course you still do want to check that the pre-calculated information is correct and whether there are any non-automatic deductions for which you're eligible.
More complex cases are, well, more complex. If you've got income from renting an apartment, for example, you do need to report that information yourself. But it's still a relatively simple online form.
Real estate tax is handled separately from income tax. You get sent a bill with a pre-calculated sum based on property registered in your name. If you have no corrections to make, you just pay the bill.
In contrast, I think even small businesses commonly hire accountants since for them the process is probably more complex with all the deductibles etc.
If the simple cases are similarly simple in the US and making corrections is a relatively straightforward form away, I wonder why there always seems to be such a big fuss in the US about filing taxes. Because of state/local differences in tax code? Just overall complex legislation? Or maybe it's just more common to have income from a variety of sources so more people need to deal with the more complex cases? Is the filing process paper-only and the only way to do simple online filing with automatic calculation to go through commercial tax-filing software?
In the UK you get a code based on last year’s earnings, which the company uses to set a flat rate of withholding on each paycheck. If there’s any discrepancy that usually just feeds into next year’s code.
In Australia, you probably need to tell the companies about the other income sources, and they will attempt to withhold at the appropriate rate. Then at the end of financial year, you go to your pre-filled online tax return which has all the figures reported by each company you work for already present and sums up whether there’s a refund or payment due. This is also where you enter any deductions.
> A simple system of, "Here's what we think you owe, based on the information we have on hand - sign and submit if you agree" would work for most people.
They already do that -- if you calculate your taxes wrong, they will send the adjustment (they will do it both ways, pay you back or ask for the remainder). I guess they might not be aware of all the deductions, but standard deduction beats itemized one for the majority, so they can 100% automate this whole process if they decide to. For complex cases and businesses, sure, you are on your own, but at least most W2 should be covered.
Yes, but tax filers have potential civil and criminal liability risk if they make a mistake.
Presumably much less if one pays more than the IRS calculates is owed.
Essentially both the IRS and tax filers verify correctness of the tax filer's return and the tax filer can be prosecuted if they make a mistake according to the IRS.
> Yes, but tax filers have potential civil and criminal liability risk if they make a mistake.
How is this an issue? Why would it be different under another system?
I see you posting a lot of what I think are pro-tax-prep messages but they don't seem to have any substance. Please try to take them to the conclusion of an argument. (That is, finish by connecting the facts you are posting with some assertion about the desirability of the current system, or some assertion the parent has made.)
What I mean to highlight is that although a mistake in filing may lead to the IRS rectifying the mistake by sending/requesting the error balance, there are other possible effects, including civil and criminal liabilities.
This is undesirable. As mentioned in many comments here, the vast majority of filers, especially those with one employer and no substantial investment income, should not be required to file their taxes and instead the IRS should communicate the calculation result and ask if the filer disagrees.
This is a classic problem related to the "you slice, I choose" false dichotomy[0]. Essentially, even assuming it costs zero time to fill out and file a tax return, any mistake at all could lead to a negative consequence to filer.
As an aside, always choose to choose and not to cut the cake :)
I suspect failing to report significant income to the tax authorities would be considered tax fraud in just about any legislation. If there weren't any kind of a potential penalty for failing to report or for significantly under-reporting, doing so would be potentially beneficial with no drawbacks.
Failing to report income or reporting false information for financial gain can lead to extra tax or prosecution for tax fraud where I live. I'd definitely be careful to report all income if I had income from sources that don't automatically withhold taxes, especially if it were significant.
I don't think they'll drag you to criminal court if you make a small mistake, though. But if you fail to report thousands of euros of income and the authorities get wind of it, sure, especially if it seems intentional.
I don't know if the risk of prosecution or other legal consequences is somehow greater in the US.
Right, when the Europeans say the tax is paid as you earn and the authorities let you file differences free and easily, they mean the vast majority of tax payers. It is rare to be the exception.
Whereas I guess American Exceptionism (tm) means you all have to pay a rent seeking company to file taxes…?
In Ireland, and I think many other countries, if you have under 6k non-employment income, it’s ~trivial; you fill in a form on the website. It only gets complicated over that (though you would still typically do it all online; the form just gets _a lot_ scarier)
As an European with multiple sources of income, all that boils down to is literally excel style fill in the boxes deal. There's even free tools that can handle the simple formulas if I don't trust my calculator enough. 1 hour a year at absolute worst; definitely no space for a finacial parasite to latch onto.
You have a very simple tax situation. Many people do not.
In the US, if you just have wage/salary income and an investment account, and you lived the entire year in one state, your taxes are also very simple. You can fill everything out yourself in one evening, or pay $100 to do it with tax preparation software.
But things can rapidly get complicated. Did you move from one state to another during the year? Do you live in one state but work for an employer in a different state? Are there any credits or deductions you're eligible for? Or god forbid you live abroad, at which point you're dealing with double-taxation treaties and the like.
In the UK, for example, if you are a simple case (PAYE employee, no other sources of income) they just do it, you never interact with HMRC at all in the ordinary procession of things. You may get a yearly summary form (P60) but that's about it.
Here in Australia everyone must fill in an annual return, but it’s a fairly well automated online system and they’re probably already already have most of the fields filled in, you just need to add anything more complicated or any deductions you think you’re owed.
In both systems you can have an accountant file for you, or use other software, but you don't need to and most British people will never file a single return in their lives.
No, they would know exactly what they know now. Employers already report your earnings to both the federal and state IRS agencies and pay your withholdings automatically adjusted for your dependencies. So a simple form that says you made X and claimed Y dependencies. Click submit to confirm…
That would be simple enough for most people (1 job, 1 home, maybe some kids) and it doesn’t require the government to know anything additional.
In that most common scenario no tax accounting service should be needed. Honestly a 1040 isn’t that complicated in that scenario either, but is still too difficult for a good number of people and it’s just unnecessary.
How exactly? Currently, you report your earnings, your employers report what they've paid you, and banks report specific transactions. How does simplifying/eliminating the deduction process (which is all that an accountant is doing) give the government more info about you?
This one government agency would need to know the superset of everything about you that could possibly be reported on any tax form. The simple case breaks down quickly. If taxes were redesigned to become overall much simpler, then sure, the reporting could be much simpler and more passive for the filer.
Nobody is suggesting they create a government super computer that does every single person's taxes perfectly.
They're suggesting letting the irs actually use the resources they already have to automate the vast majority of the people's taxes to save everyone time and money.
It doesn't have to be perfect to be a huge improvement.
Businesses paying people already file copies of the W-2s and 1099s that they send to their employees with the IRS, meaning that, for a very large chunk of Americans, the IRS already knows everything needed to fill out their tax forms.
Having lived in both the US and several European countries, America is already the privacy nightmare because all your data is with corporations who can do absolutely anything with it. European-style effortless automatic tax filing certainly wouldn’t make it any worse.
(Also it’s rather ironic that people who think like you have been voting for the party which is currently enabling Palantir to build Chinese-style surveillance in America. But as long as the data is owned by billionaires and they promise to only use it against the “others”, I guess it’s fine.)
Taxes are simple if you live in one place and only receive income from your employer. If you have multiple sources of income, connections to multiple countries, etc., things can get very complicated very fast. That's why the tax prep industry exists - and not just in the US.
That being said, the Internal Revenue Service could prepare the taxes of most Americans. A simple system of, "Here's what we think you owe, based on the information we have on hand - sign and submit if you agree" would work for most people.