The Effects of Prefilled Tax Returns on Taxpayer Compliance

Abstract

ABSTRACT 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 income (e.g., cash tips). However, the 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 change individuals' reference points. These findings suggest the implementation of a prefilled return policy could have economically important effects on taxpayer decisions.