If an income tax system were simple enough, the government could withhold taxes owed and do its own accounting at the end of the year without much help from taxpayers.
Some countries have eliminated the need for many taxpayers to file any income tax return. In those countries, the tax agency attempts to withhold the exact amount of taxes due from paychecks and other income so that no end-of-year filing, payment, or refund is needed.
Two types of exact-withholding systems exist. Cumulative systems (used in the United Kingdom and Russia) aim to withhold exactly the right amount of tax at regular intervals across the year. Final-withholding systems (used in Japan) make adjustments by withholding more or less money from the final paycheck of the tax year.
Exact-withholding systems work best in countries where the tax unit is the individual—that is, married couples do not have the option to file jointly, which would make it difficult to withhold the right amount of taxes under a progressive tax system. And even when the filing system is based on the individual, some taxpayers may still be obligated to file a tax return—because, for example, they have income from self-employment or they deduct expenses that are not reported by third parties to the tax authorities.
In the United Kingdom, a third of taxpayers were required to file a tax return in 2022.
Updated January 2024
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Goodman, Lucas and Katherine Lim, Bruce Sacerdote, and Andrew Whitten. 2023. “Automatic Tax Filing: Simulating Pre-Populated Form 1040.” National Bureau of Economic Research Working Paper 30008. Cambridge, MA.
Goolsbee, Austan. 2006. “The Simple Return: Reducing America’s Tax Burden through Return-Free Filing.” Washington, DC: Hamilton Project.
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