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The Effect of Tax Domain, Income Class and Personal Norms: An Analysis of Taxpayer Compliance Decisions Using Paper and Software

Sat, October 10, 7:30 to 8:30am, TBA

Abstract

Tax Software has become the predominant format used to prepare and file taxes in the U.S. Compared to filing paper returns, tax software significantly changes the reporting environment. For example, tax software uses tax position indicators that update a taxpayer’s tax position (i.e. whether they will receive a refund or owe additional tax) in real time as they enter their tax information. This study uses an experiment to investigate how tax compliance decisions made when using tax software with a tax position indicator differ from those made when using paper forms. We find that taxpayers using software who are in a “tax due” position tend to report significantly less income than those using software who are in a “refund” position. We also find that the presence of a tax position indicator alters the amounts of cash that taxpayers report and has both beneficial and negative effects on compliance decisions.

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