Tax Filing (A Teeny Tiny Rant)

I know in the US you don’t have to file your tax return until mid April. Here in the UK the filing date has just passed at the end of January. I’m always amazed by the sheer number of people who fail to meet the filing deadline, as if it somehow sneaks up on them despite being the same date every single year. Last year, even with reasonable extensions, it was close to 10% of the population who ended up getting hit with late fines. One has to wonder what they thought was going to happen.

The numbers in the US are even more staggering when you consider what’s at stake. The average American household pays somewhere in the region of $15,000 to $20,000 in federal income tax each year—though of course that average is skewed upward by high earners, and the typical middle-income family pays considerably less, the lower 50% is in the region of $900. The IRS processes over 150 million individual tax returns annually, collecting trillions in revenue. With figures like that, you’d think people would be rather more careful about getting things right. You’d be wrong, of course.

Millions of Americans end up paying penalties they could have easily avoided with a bit of planning. The IRS charges a failure-to-file penalty of 5% of unpaid taxes for each month you’re late, up to a maximum of 25%. On top of that there’s interest and potential failure-to-pay penalties. If you owe $5,000 in taxes and file a few months late, you could be looking at hundreds of dollars in unnecessary fines. That’s an awful lot of money to throw away simply because you couldn’t be bothered to keep your paperwork in order. The IRS must send thank-you notes.

Then there’s the truly baffling phenomenon of people who are actually owed money but simply never bother to claim it. The IRS estimates that billions of dollars in unclaimed refunds go begging each year. The average refund in the US is around $3,000, yet roughly a million taxpayers fail to claim what’s rightfully theirs each year. After three years, that money becomes property of the Treasury. It’s rather like leaving a cheque in a drawer until it expires, except you’re the one who has to do the legwork to get the cheque in the first place. The same people would undoubtedly kick up an enormous fuss if their employer shorted their paycheck by even a fraction of that amount. Apparently free money only counts if it arrives without any effort.

The reasons people put off tax filing are as varied as they are amusing. Some claim they’re waiting for documents to arrive, as if these things materialize by magic. Others insist they’re simply too busy, which is rather rich considering they find time for social media and binge-watching. Then there’s the crowd who find the whole thing too stressful, so they deal with it by not dealing with it at all, which makes everything more stressful when the deadline looms. What happens is that a manageable annual task transforms into a panic-inducing crisis, complete with rushed calculations, missing receipts, and expensive penalties. The procrastination meant to avoid discomfort creates far more discomfort in the end.

For the majority of people, it’s only slightly complicated. A bit of organization with your paperwork throughout the year covers most of the issues. I’m one of those tediously organised individuals who files on the very first day it’s possible to do so. Last year, according to our tax authorities’ statistics, I was one of only 0.5% who did. I’ll confess, I maybe need to get a proper life. I know this is not normal behavior and I’m a bit of an oddity. My wife Suzie has learned not to ask me for help with household projects because I once color-coded the pantry by use by date. But really, you don’t need my level of neurotic efficiency to avoid penalties. You just need a folder and a calendar reminder.

But still, quite a few will be sitting there in mid-April in a state of mild panic, surrounded by receipts and forms, wondering why you do this to yourselves every single year. And yet somehow, come next year, they’ll do exactly the same thing again. At least it’s predictable. I wonder what the most entertaining excuses will be this year? I’ll be watching from my annoyingly tidy desk waiting for the answer…maybe their pet piranhas ate the receipts?