The Effects of Prefilled Tax Returns on Taxpayer Compliance
57 Pages Posted: 10 Dec 2018 Last revised: 9 Aug 2019
Date Written: July 2019
This study uses two online experiments to examine the potential consequences of a recent U.S. Senate proposal to prefill federal income tax returns on behalf of individuals. Consistent with omission theory, we find that prefilled returns lower compliance compared to self-completed returns when the prefilled returns do not estimate undocumented sources of income (e.g., cash tips). However, our results show that including estimates of undocumented income increases taxpayer compliance relative to self-completed returns. We also find evidence suggesting that prefilled returns eliminate the often-replicated differences in reporting behavior between taxpayers in refund versus tax due settlement positions, suggesting that prefilled returns changed individuals’ reference points. These findings suggest the implementation of a prefilled return policy could have economically important effects on taxpayer decisions.
Keywords: prefilled tax returns; taxpayer compliance; prospect theory; omission theory
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