The way we pay income taxes in the United States is, to see the least, very weird. For one thing, our Federal Tax Code is very complicated — although contrary to the myth that one very anti-tax group tried to start, it is not 70,000 pages long. Not even close.
The current tax code is about 2,600 pages long — maybe — although no one really knows for sure. It is part of the much larger Federal Code, which covers Federal Law in the U.S., which is a huge subject.
Once a year, the average wage-earner is expected to understand the ins-and-outs of that tax code, file some forms with the Internal Revenue Service, figure out whether they owe money or should receive a refund, then send it all off, fingers crossed.
This is called “filing a return,” and that’s just the Federal part. If you don’t live in one of 9 states that does not have state income taxes, then you have to file those, too. These are different forms, they go to a different taxing entity — in California, it’s the Franchise Tax Board — and there are subtle differences between what is and isn’t taxable income between the two.
And it’s up to us to figure all of that out, fill out the forms correctly, and send them in. But dog forbid you should make a mistake, because that can lead to major annoyances.
They don’t do it this way in other countries. Denmark, Sweden, Estonia, Chile, and Spain, among other countries, already send “pre-populated” returns to citizens.
In Japan and the UK, they don’t even bother with the returns in most cases, instead using what they call “precision withholding.” Both countries track what you’ve made, what’s being deducted, and what credits and exemptions you’re qualified for. They make regular adjustments to amounts withheld through the year, with the goal being a zero balance at the end — neither taxes nor refund owed.
Now, the thing is, both the Internal Revenue Service and State Tax Boards have all of that same information already, and they could do exactly the same thing. At the end of the year, you get a letter saying, “Here’s what we calculated. Please make any corrections or adjustments on the form, and return it to us with your payment or check if we owe you a refund.”
For my 2020 tax return, I ran head-long into the major flaws of this system. It was already a rough year to begin with, and the usual deadline had been extended for a second year in a row. But a bit of misinformation led me to a $750.00 penalty plus interest and all that and, ultimately, the threat of a lien on my property.
Here’s what happened.
For the last few years now, America taxpayers have had to show proof of health insurance for each calendar month or pay a penalty. I don’t know what the Federal maximum is, but the State for California is… $750.00.
Now, I never got the tax form in the mail showing proof of insurance, and the agent I was dealing with at the time mixed up State and Federal. As I found out later, the Federal government waived the proof of insurance requirement for 2020 because of ongoing COVID issues.
California, however, did not.
But my agent told me that both were waived, and since I hadn’t gotten the forms, I figured that this was accurate.
What she hadn’t mentioned was that she had signed me up to get the forms electronically, but then for whatever reason I never got any email me telling me that they were waiting. Oops.
So I filed Federal and State taxes. Everything went well with the Federal — although it took forever — but then I eventually got a check for about $860 or so, which included yet another of the $600 stimulus payments.
As for the State, I instead got a bill for about $840, which was the non-insured penalty plus interest. As soon as I got it, I called them, but then ran into the first roadblock.
Despite the system still being set up for it, there were apparently no humans available for customer service — this was around late June early July of 2021. I was told to create and account online for faster service but, lo and behold, there was some issue with creating that account which I was never able to resolve.
So the only thing I could do was file an amended return, including the proof of insurance form, also recalculating the income tax due because the information on how much Federal unemployment was taxable had been really unclear and confusing, recalculating the actually no-insurance penalty due, and sending it all in.
I paid the tax part of it, about $199, online right away, but couldn’t really pay the penalty until they confirmed it. And that was that, until I got a notice insisting that I still owed the $840 or so.
Repeat trying to phone in process, same results. Try to create account. No luck. Hope that this notice was just mailed in error and that the amended return had been received and entered.
This goes on until November, with a new and more threatening letter each month, no way to contact a human being, still no online account. And then, this month’s fun — a Notice of Lien, which is basically saying we’re going to put a claim on… something you own in order to get our money.
Thing is, they don’t say what. If they’d wanted, they could have just taken the amount out of my Savings account, and that would have been the end of it despite their error. But it also implied that they could have put a lien on my car and forced its sale (or prevented me from selling it) and so on.
Now, I know from experience that if they know the cash is sitting there, that’s what they’ll take, because it’s easiest. And while I could afford that, it would still leave me with having to prove that they had, in the words of the California State Tax Code, “gloriously fucked up.”
The funny thing though, is that during this whole process of threatening letters, never did I see a single penny slip from any of my accounts. In a last-ditch effort to figure out what was going on, I called the number on the notice.
This number was different than the others. In fact, at this number I actually got through to a real human being. I guess they figure most people calling this one will be desperate to pay before the lien goes into effect.
I wasn’t most people. But the woman who answered was very helpful and, once I’d provided sufficient identifying information and explained the situation, she looked up my records in their system.
She informed me that I owed $115.21, and if I paid it today that would be the end of it.
Oddly enough, that number sounded damn close to what I had calculated as the actual no-insurance for one month penalty due, and I told her that of course I’d be paying it today, thanked her very much for her help and was greatly relieved, finally.
Apparently, they had just done their year-end accounting close, meaning that they finally cross-checked payments made, forms filed, made adjustments, and came to the same conclusion that I had.
They could take their (by now) $884 penalty and shove it, but here’s the $115 I actually owe.
I paid it shortly thereafter, and it looks like that’s the end of it. Now, granted, it’s been a weird year and they’ve been understaffed, but they could still do better.
The way to do that better is to follow the Japanese or British system, of course. But then what would all of the poor tax accountants and lawyers and tax software people do?
Honest answer — continue to make a fortune off of the rich. I mean, it’s not like I’ve ever hired any of those people before in my life, and I even managed to successfully maneuver this one on my own.
But nobody should have to. The government knows what we made and what we owe. They can damn well bill us. Period.