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The Digital Transformation of Tax Filing and Payment and Why Some Communications Still Require Paper

By the early 1980s, both tax preparers and governmental agencies were using computers to prepare and process returns; however, returns were still submitted on paper forms. This increased the chances of making errors. In 1986, five tax preparers were selected to participate in the first test of electronic tax filing (or e-filing), using tape readers to compile the tax return data and modems to submit the files to the federal government.

Initially, some preparers and taxpayers were concerned that e-filing provided the government with more data that could be used for audits. However, e-filing proved to have an error rate of about one percent, versus error rates of up to 20 percent with paper returns. This reduced the need for as many audits. E-filing continued to expand, with more than four million returns submitted digitally by 1990, and more than half of returns filed electronically by 2005. Today, about 90 percent of Americans submit their returns electronically.

While most use digital methods to compile and file their annual returns, many still mail in a paper check to pay any taxes owed. A recent YouGov survey shows that while over half of income tax payments are submitted digitally, 26 percent of taxpayers prefer to mail a check to pay income taxes due. This is in line with other tax payment trends. According to ACI’s 2020 Consumer Pulse survey, 33 percent of Americans mail a check to pay their property taxes. However, when taxpayers are due a refund, time is of the essence with over 90 percent preferring a digital disbursement directly to their bank account from the IRS.

Those who owe tend to procrastinate and are more vulnerable to tax scams

With almost 1 in 4 taxpayers filing their taxes in the two weeks leading up to the deadline, speedy filing and payment options are critical for the 27 percent of filers who owe additional taxes to the government.

However, last minute tax filers need to keep their guard up as they are more vulnerable to tax scams, which continue to wreak havoc—in the form of phone and email scams, and scams related to illegal tax preparers and ghost preparers. The good news is that awareness of these scams is up, as the number of consumers stating they were victim to a phishing (email) scam is down to 12 percent, while the number who fell victim to a phone scam also dropped to 21 percent.

Preference for digital methods is driven by speed and security but paper may prove more valuable in one instance

If taxpayers think they owe taxes.

Initial notices regarding taxes due are always sent through regular mail delivered by the U.S. Postal Service. According to the IRS website, they do not use email, text messages or social media to discuss tax debts or refunds with taxpayers.

Regardless of how you file your return, taxes are still due on July 15

While extensions can be filed to buy more time to complete your tax return, unpaid taxes are still due by July 15. Additional interest and penalties can be added to the tax debt if not paid by the due date.

Thankfully, there are many options to make a last-minute tax payment.

ACI recommends these top tips for taxpayers this season:

Digital payments: Opting for digital payments vs. a check is a safer (and faster) choice for consumers. Checks typically include social security numbers that can be easily stolen by fraudsters.

Cash Payments: Consumers opting to pay their taxes with cash must consider that it takes approximately 5-7 business days to process. Avoid late payment penalties by filing early.

Tax Scams: Although phone and email scams are more popular among fraudsters, consumers must be aware of other scams such as the “ghost preparers” and illegal tax preparers. Always check your tax preparers PTIN to ensure they are legitimate.

 

ACI’s online bill payment service Official Payments is the longest-tenured service provider for the IRS and has processed more than $20 Billion in tax payments securely for more than 20 consecutive years.

The Official Payments website also processes tax payments for 22 state governments and over 2,400 local municipalities. Find out more here: ACI Worldwide’s Official Payments Improves Online Tax Payment Process with Internal Revenue Service

Principal Fraud Consultant – Payments Risk Management

Dan Anniuk is principal solution consultant at ACI Worldwide, specializing in the Government vertical and has over 20 years of experience in the payments industry.

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