Why Tax Filing Is Such a Headache

Yes, the American tax code is complicated. But a web of other forces makes the country’s tax-filing system much trickier than it needs to be.

First, here are four new stories from The Atlantic:

Difficult and Expensive

Doing taxes isn’t many people’s idea of a good time—especially right now, in the crunch of filing season. (For those of you still in the process, my apologies for reminding you of the impending deadline.) America has a complicated tax code, but that’s not the only reason tax filing online is so stressful: Companies have lobbied hard over the years to keep the experience difficult and expensive.

Americans who have an income below a certain level are entitled to free federal tax filing. But millions of people who should qualify for free filing have ended up paying to file in recent years. In the early 2000s, after the government started talking about providing free tax filing to the public, a group of companies led by TurboTax, with the help of high-powered lobbyists, told the government that they would provide free federal tax filing for a swath of Americans through the IRS’s Free File program. In exchange, the government agreed to back off. The companies kept their end of the deal, partnering with the IRS, and they later turned to creating additional free services on their own websites. (TurboTax and H&R Block remained affiliated with the IRS’s Free File program until a few years ago.)

But free tax filing did not turn into an idyllic public resource. For one, TurboTax marketed as “free” products that ended up involving fees for some users—earlier this year, the Federal Trade Commission told TurboTax that it needs to stop claiming that its services are free unless they are free to everyone or exceptions are disclosed. (Intuit has appealed.) And ProPublica reporting in 2019 found that TurboTax deliberately suppressed links to its IRS Free File service in Google searches, in order to divert people to one of their paid products. (A spokesperson for Intuit, the parent company of TurboTax, told me that it has helped more than 124 million people file for free over the past decade, and ProPublica reported that TurboTax changed the code on its Free File option page after the publication of the ProPublica report in 2019 so that the option was no longer suppressed from search engines.)

Many tax-filing systems aren’t just expensive; they’re also confusing to use. Some companies have employed design choices to make certain steps of the process feel more laborious. In 2017, Kaveh Waddell wrote for The Atlantic about how TurboTax showed users fake progress bars—illustrations that seemed to show the site checking every detail of a return but that turned out to be generic. Waddell described the fake progress bar as an example of the concept of “benevolent deception”; as a spokesperson for Intuit put it at the time, the animations were used to assure customers “that their returns are accurate and they are getting all the money they deserve.” Still, although an illustrated progress bar might be reassuring, it also highlights the apparent complexity of the process. Look how hard we’re working to file your taxes, the bar seems to say.

Does tax filing need to be this complicated? A new government pilot program is trying to prove that it doesn’t: Earlier this year, the IRS, which is not exactly known for its technological prowess, released a version of its own free online-filing service. As my colleague Saahil Desai reported last month, “That Direct File exists at all is shocking. That it’s pretty good is borderline miraculous.” Right now the service is available in just 12 states and only works for simple federal returns—and it has guaranteed funding for just this year. Still, Saahil writes, “it’s a glimpse of a world where government tech benefits millions of Americans. In turn, it is also an agonizing realization of how far we are from that reality.”

A free and easy way to file returns seems like a real public benefit. But the program’s haters have been loud (already, TurboTax and H&R Block, which make billions of dollars from filers every year, have reportedly spent millions lobbying against it and other matters). Some critics of an IRS-backed filing alternative are skeptical of what they describe as its conflict of interest: If the IRS is the institution that collects money from you, will they have the taxpayers’ interests in mind, or their own? The IRS has said that its goal is simply to apply the tax code; still, private companies’ promise to get users the best refund possible sounds, on its face, more consumer friendly. Skeptics are also focusing on the question of funding: TurboTax pointed me to a recent Government Accountability Office report calling into question how much taxpayer money would be spent on the program—and a spokesperson for Intuit told me in an email that “IRS Direct File is a solution in search of a non-existent problem.”

One day, perhaps, tax filing will be affordable and transparent for all. But if your immediate future involves parsing W-2s and rustling up receipts, I wish you the best of luck.

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Stephanie Bai contributed to this newsletter.

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