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I've heard that tax fraud is growing rapidly in the US. For those not familiar with the way we do things, when you make money, taxes are withheld by employers at a rate somewhat chosen by each individual and this money is sent to the IRS. Individuals have incentive to get this right to avoid giving the
government a free loan, but have incentive to slightly over-withhold to avoid penalties. Between Jan 1 and April 15 we're all supposed to file tax returns to tell the government how much we made, how much was withheld, how much we think we should have paid, and how much the government should send back to us or how much tax and possibly penalties we need to send in. Now the IRS has a computer glance over the paperwork briefly to catch obvious errors, but in general they just mail out the amount requested. They find errors by doing audits on some returns chosen randomly or sometimes not so randomly.
Thieves have discovered that it's pretty easy to file a false return using someone else's info before they get around to it, and have the money sent to a prepaid credit card. By the time the real person files their return, alerting the IRS that there's a problem, the money for the fake refund is long gone. The IRS apparently does straighten it out eventually and get the proper refund to the real person, but apparently billions of dollars are lost annually. The actual amount isn't even known because not everyone files a tax return every year, so a false return filed for that person won't be discovered unless it is audited.
Now if the IRS tracked every individual properly, there wouldn't be a problem, but around here people have a problem with the government tracking them. So the IRS is basically reduced to spending a lot of money on enforcement trying to flag suspicious returns, and track down the criminals after the fact.
This idea is intended to give very little additional tracking ability to the government but make the refund process much harder to steal from.
Each year, when an employer starts withholding taxes for an employee, they should generate a GUID (globally unique identifier) for each employee. This GUID and the employer name is shared with the IRS and linked to each tax withholding payment and with the employee. When the employee files taxes, if he wants to claim that any taxes have been withheld, that fact needs to be authenticated with a GUID(s) matching the employer name(s). This info can be on the W2 form which should perhaps now be delivered in a more secure fashion than snail mail. With this, the only way to get a false refund would be to intercept some of these codes (can be improved with targeted security improvements in storage and communication of codes), or if returns a filed claiming no income but various hardships (like children) that result in the IRS sending "refunds" to people who didn't pay any taxes. The IRS would be no better off for this second group, but at least that group might be smaller and maybe we would be able to pass laws such that anyone who wants to get more money back than they put in actually has to accept a greater amount of tracking.
|Wot should happen is when you're hired you walk in with your SSN card. The (bonded) HR person checks it with SS (online secure), with a randomly chosen security question answered by you.
|SS issues the company a unique number which is only used for interactions between company and the feds concerning that employee. The SSN card goes back in your pocket, it's number unrecorded anywhere: the only insecurity window is the brief communication beween company and SS to verify that the employee is indeed who they say they are.
|There's no //greater amount of tracking// save if you're on file with a company but not working (which can happen in the temp industry).
|The guid or other data is only as secure as the rest
the corporate data. Considering how thieves are
breaking into those systems (like the recent
stores --and if that name wasn't a come-on, I don't
know what a better one might be!), I don't really
much of an extra barrier here, for tax-identity
|Perhaps something less "fixed", and combining
some of the Ideas here, is in order.
[FlyingToaster] proposes that there be some extra
data known only to the Social Security
Administration and the employee, and that this
data be used when the employee claims a refund
from the Internal Revenue Service. It seems more
logical to me that the IRS should hold the special
data, not the SSA (fewer points of access). Also,
there should be one or two additional items of
special data, known only to the IRS and the
|Pass a Law saying that if THAT special data
escapes Corporate security, all the bigwigs in the
Company are to be executed. Then we will see
some REAL security being applied to protect it!
|Meanwhile, this special data, known to both the
Company and the IRS, along with ordinary
employee data, is used by a special algorithm to
generate a special sequence of longish numbers
(perhaps 30 digits each). Each time the Company
reports (encrypted!) wage data to the IRS, a new
special number is associated with each employee.
The IRS uses the same algorithm and the same
employee data to generate the same special
sequence, allowing the IRS to associate the
arriving data with actual individuals.
|You're solving the wrong problem. Employer ID
Numbers already track employers well enough, and in
the mean time the vast amount of taxdodging is
through loopholes put in place by corrupt politicians,
poor enforcement by cronies of corrupt politicians,
and international movement of assets and closing
and re-opening companies in a quasi-legal manner
that allows companies to effectively lie about their
income and assets.
|Well sure, I agree the whole tax code could be improved, but that's a major political battle. It just seems like it shouldn't be too hard to fix this in such a way that the only ones who don't like it are the criminals. This seems like it ought to take a few million dollars to design and implement a good system that wouls save a few billion dollars a year, not to mention avoid funcding criminals, and causing a lot of inconvenience for those who's returns were messed with.
|I'm probably much too optimistic. If this was introduced by either party no matter how it worked, the other party would find some reason to oppose it.
|Is this the case for all employees, irrespective of the level of their annual salary? Why are people guessing the amount of tax they have to pay? Can't that be computed and deducted at source, rather than being guessed and deducted?
|//Now if the IRS tracked every individual properly,
there wouldn't be a problem//
[calum], payroll deductions are typically done this
way for those who are on salary. However, one
can still have other deductible expenses and so it
is common enough to have more complex form. A
refund might also materialize because you are
entitled to a new deduction that was not
reflected in your payroll, such as an addition to
your household, purchasing a home, out of the
ordinary medical expenses, etc
[theircompetitor] scratched the surface. In addition...
- Income can change because of returns from investments.
- Tax returns from state taxes affect taxable income too.
- State and local sales tax deduction rates change every year and the tables for standard sales tax deduction rates based on income aren't available before the end of the year (or at least I couldn't find them).
- Local property and sales tax rates can change mid-year, although with those you would have enough time to change the witholding rate if you take the time to try to figure that out.
|Maybe the worst one is that the tax laws often change mid-year as well. One year some "temporary" tax breaks were set to expire, but everyone expected congress to extend them. The end of the year was approaching and congress was deadlocked so it wasn't clear if some or all of those actually would be extended. One was the state sales tax exemption. Even worse was the income threshold for the alternative minimum tax. Congress didn't bother to index that to inflation and the permanent value was a decades old level affecting a very large percentage of the population, but it was defacto indexed by the fact that every year congress temporarily adjusted it to a more reasonable level. I wasn't too bad off because I just targeted my witholding to 100% of the previous year tax liability, so I would just have to write a large check if they didn't extend the tax breaks as expected. But for someone who's income had decreased significantly, they would have to withhold much more than they expeced to actually owe or else risk penalties for not having witheld enough if deadlock in congress caused the threshold to not be adjusted.
|It is extremely annoying to me that I can't plan for the year because tax laws are not solidified before the beginning of the year. The problem is that even if it is illegal to retroactively increase the tax rate, no one wants to prevent congress from decreasing the tax rate part way through the year as a way to do economic stimulus or whatever. But now they have the permanent rate set high and every year decrease it by extending a handfull of tax breaks, essentially allowing them to retroactively raise the taxes for the year if they want, or more likely if there is deadlock.
|And the above maybe puts a small divot in the surface next to [tc]'s scratch.