Published: https://codeforamerica.org/news/importance-of-simplified-tax-filing/

By: Gabriel Zucker, Kelly McBride, and Maximillian Hell

Date: February 24th, 2023

When we [Code for America] launched GetCTC, our simplified tax filing tool to help Americans with low income access the Child Tax Credit (CTC) and stimulus payments, we were testing a bold theory. We hypothesized that groundbreaking new IRS simplified filing rules—that allowed some families to file returns providing only their basic information, without reporting their income or providing documents—would be transformational. By allowing families to file such returns using GetCTC, we thought we would open the door to the tax system and its critical benefits for many families who rarely or never interact with it.

The mobile-first, bilingual tool that used plain language to help families file simplified tax returns exceeded even our expectations. After running for 10 weeks in fall 2021 and another six months in 2022, GetCTC has helped nearly 200,000 households claim an estimated $685 million—an average of $3,500 per return.

GetCTC proved transformational for first-time filers and families with low income. It also proved that a streamlined, targeted, and simplified tax filing process is critical to expanding access to tax benefits.

Based on two years of operation, a set of direct experiments isolating the impact of simplified filing, and a powerful pilot implementation of Earned Income Tax Credit (EITC) functionality thanks to updated 2022 rules, we’ve learned a lot about how to help individuals and families who are marginalized access benefits through the tax system.

With GetCTC, the typical client finished the entire process—from the first screener question to final notification from the IRS of return status—in about 20 minutes, and 80% completed the application on a mobile phone (compared to the IRS’s estimate that the average non-business household will spend eight hours preparing a tax return). More than four in five of those GetCTC clients who took our follow-up survey called the process “easy” or “extremely easy.” This was true even among the 31% who said they had never filed taxes before.

It seemed so easy. It was almost like I felt like, are they sure this is all I have to do? Really? - GetCTC Client

The simplicity of filing on GetCTC changed how advocacy organizations and government agencies were able to do outreach to families who have the most to gain from filing their taxes. Previous research on outreach campaigns, such as a landmark 2020 study by the California Policy Lab (CPL), found that tax benefits outreach was sometimes entirely ineffective, in part because many families saw the filing process as so complicated as to not be worth it. But in 2021 and 2022, low-touch outreach campaigns successfully moved tens of thousands of families to file using GetCTC. In 2022, for example, a text message from the state of Massachusetts to SNAP and TANF beneficiaries motivated 4,000 families to file returns. In addition, CPL recently released experimental data rigorously documenting the effectiveness of tax benefits outreach using GetCTC in 2021.

This year, not only do we have ample circumstantial evidence for the power of simplified filing; we have direct evidence as well. In June 2022, we ran a randomized controlled trial, encouraging a set of families with low income to use either GetCTC or a non-simplified full tax filing product. The results were striking: five to eight times more families completed simplified than full filing. Given the choice, 15-30 times more families elected simplified rather than full filing. The simplified filers finished their returns far faster than the full filers, and in some circumstances even claimed similar-sized refunds. Compared head-to-head, simplified filing brings far more families in the door than full filing can.

We also directly tested the basic theory that the secret to simplified filing’s success is that it waived the requirement to report income. In October, we experimentally launched EITC functionality in GetCTC. Because EITC is a function of income, clients claiming it were required—unlike other GetCTC clients—to report their income and provide W-2s in order to claim the credit. We found that these additional requirements indeed posed very significant barriers for GetCTC clients. Out of 66,714 clients who started a return claiming the EITC, only 1,079 successfully submitted a return claiming the EITC; and less than a third of clients who tried to add a W-2 to their return successfully did so. Clients who elected to claim the EITC were more likely to report in follow-up surveys that the tool was hard to use. Simplified filing works by easing the process of filing a return—when we add traditional return complexities back in, completion rates indeed plummet.

These learnings continue to underscore the key principles of Code for America’s work on tax benefits. Filing taxes is complicated and daunting, and the lack of easy ways to do it stops many families with low income from claiming the tax benefits they are owed. But a simple and accessible front door, requiring no more data than the IRS absolutely needs, can be a game-changer.

Because the fully refundable CTC lapsed at the end of last year, GetCTC and simplified filing will not be available this year; there are not currently any tax benefits that families can claim with an income-free return. But this isn’t the end of the line for simplified filing. As the IRS undertakes a wholesale modernization in the wake of Congress’s long overdue $80 billion investment in the agency, we urge the agency to build on these findings. This means providing and promoting free and accessible tax filing solutions that allow families to file returns without reporting their own income data—and investing in solutions like our design prototype for an IRS direct file tool. With these learnings and tools, the IRS can continue the incredible work it has done in the last three years to advance equitable access to tax benefits, opening the door of financial stability to more individuals and families.