Through Return-Free Filing, the U.S. could save up to $2 billion a year in tax preparation fees. Compliance costs for the individual income tax in the United States have been estimated at 10 percent of tax revenue collected.
Taxpayers do not have complex economic arrangements that become enmeshed with the massive tax code. Instead, their compliance costs arise simply because the government is not using the information it already has to help them calculate their taxes. The IRS estimates that the average time required for taxpayers to complete its 2004 tax forms ranged from almost four hours for the 1040EZ to more than thirteen and one-half hours for a full 1040. For those who use paid tax preparers, the IRS estimates the average fee for a 1040EZ form to be $81, 1040A form to be $122, and the full 1040 form (without itemizing, self-employment income, or capital gains) to be $121. For returns including the earned income tax credit (EITC—the provision aimed at the working poor), the IRS estimates the average fee to be around $200.
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