Making Z Connection: Changes the Internal Revenue Service Should Implement to Reach Generation Z

• Publication year: 2022
• Author: Written by Elisabeth Sperow, J.D.

MAKING Z CONNECTION: CHANGES THE INTERNAL REVENUE SERVICE SHOULD IMPLEMENT TO REACH GENERATION Z1

Written by Elisabeth Sperow, J.D.

ABSTRACT

We live in the most technologically advanced society in the world. Yet we continue to leave a myriad of taxpayers in the dark when it comes to filing their income tax returns with a lack of easily accessible information and preparation methods. This paper highlights some steps the Internal Revenue Service ("the IRS") can take to reach the newest generation of taxpayers, Generation Z ("Gen Z"), while increasing their understanding of their rights and responsibilities as taxpayers, and ways the IRS can improve the tax filing process in general.

At the start of the 2020-2021 academic year, our team endeavored to learn what young taxpayers and workers think of the current tax education and preparation methods and how they believed they should be improved. To gather sufficient data, we created and conducted an anonymous, on-line, nonscientific survey of over 150 students, employees, and young adults to ascertain their confidence in obtaining adequate tax information and filing their own returns as well as the media through which they would prefer to file. Our survey, as well as independent research we conducted, found that Gen Z has a profound lack of knowledge of their rights and responsibilities as taxpayers. This generation is coming of age with a technological familiarity surpassing all previous generations, which makes them ideally situated to help the IRS expand and improve in ways that will benefit everyone.

In collecting these data, we assess the methodologies of interest to our sample population and determine the best ways the IRS should proceed to create a modernized way of educating and preparing the newest generation of taxpayers to ensure they are filing timely and accurate returns. We also evaluate the systems that are already in place and suggest ways they can be improved. Throughout the paper, we include data and diagrams to clearly delineate the gap in current tax preparation systems. We posit a mobile, user-friendly interface which could fill this need not only for Gen Z, but for all taxpayers looking to decrease or even eliminate the time and money currently dedicated to preparing their annual tax returns.

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Our conclusions argue in favor of expanded tax education in American schools, an improved IRS App, preferably with voice assistance, and an electronic IRS prepopulated and created tax return.

Whereas tax policy has always played an important role in everything from funding public services to incentivizing public and organizational behavior, the increasing digitalization of the global economy has seen greater focus . . . to address the impact . . . on taxation.

—Kate Barton; Ernst & Young, EY Global²

INTRODUCTION

"No taxation without representation" was the passionate refrain of the American colonists in the mid-1700s in a feverish outcry against the perceived injustices of the British government.³ The colonists argued that they should not be obligated to pay taxes to a government that granted them no place in its policies or procedures. While there are areas where this problem of underrepresentation endures, the great majority of citizens in the United States today are granted representation in government. In return, most citizens pay federal and often state income taxes to help fund programs and initiatives such as education, infrastructure, national defense, Social Security, and Medicare.

Despite this representation, there is a large proportion of the tax-liable population that does not feel represented in a different way. Generation Z ("Gen Z") is the newest group to be entering the workforce, comprising ages 10 to 24 years. They account for over 68 million citizens in the United States—more than double the population of the state of Texas.⁴ The disenfranchisement experienced by Gen Z stems from the lack of modern, accessible information and methods for tax education and tax filing. A recent Forbes article took note that approximately ten percent of tax-paying Americans still use paper-and-mail filing, indicating that the other 90% e-file either with assistance from a tax accountant or online commercially available software or a free in-person program such as the Volunteer Income Tax Assistance (VITA) program which has sites throughout the country.⁵ While these resources can be helpful, they are not comprehensive nor contemporary in their offerings. Today, a person can pay their bills with a few smart phone clicks or simply ask their phone a question and get an immediate answer, but a person cannot file their tax return with a few clicks of a button or get an IRS answer for a simple tax question. Rather, they often must dive deep into their internet searches to understand factors as simple as their proper filing status or filing requirements.

Many people opt for online filing with services like Turbo Tax or H&R Block, but these systems contain numerous additional features that draw in unknowing users as well as their pocketbooks. Currently, the IRS provides links to free filing services on its website as part of its Free Filing Program, but studies show there are serious limitations with these programs.⁶ Often these free filing options include features which unsuspecting users can unknowingly add that are not free. For example, those filing with less than $72,000 in income must complete a questionnaire and then are directed to a list of websites to file the return. The resources are useful, but they also rely on the taxpayer understanding whether they qualify for certain credits like the Earned Income Tax Credit ("EITC"). For those above the $72,000 threshold, taxpayers are directed to yet another website offering "fillable forms" that can make users vulnerable to potential cyber-attacks from the numerous sites linked to the IRS host page.⁷ These individuals are also told they need to know how to complete paper forms which may seem puzzling given they are accessing information online.⁸

What Gen Z needs is a comprehensive, professional platform for filing their taxes that informs them of their filing status, all applicable credits, and provides an assessment of their tax liability with information about payment methods. If paying your bills online is as easy as clicking a button on your smartphone, shouldn't filing your taxes be as well? The chart below displays the overwhelming percentage of students and young employees in our study who believed the current tax system should be improved.

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Of those surveyed 83 percent said "Yes," it should be improved, 17 percent said "Maybe" it should be improved, and only one of 143 respondents said "No" need for improvement.

This pie chart shows that 83 percent of students who participated in the survey indicated that they do think the tax system should be improved, while 17 percent responded with a "maybe."
Image description added by Fastcase.

To gather data on the topic of interest, our team created and distributed a comprehensive, anonymous survey to students at California State University, San Luis Obispo, San Jose State University, and the University of California, Berkeley during November of 2020. An analysis of these findings in conjunction with other research informed our recommendations.

EXPANDING TAX EDUCATION—THE NEED

While the Right to be Informed is the first right listed in the Taxpayer Bill of Rights,⁹ significantly, our research disclosed that Gen Z has little knowledge of the tax system in general and even less of their rights and responsibilities as taxpayers. This finding is particularly concerning given that our research focused on college students, most of whom were business students, who one would think might have a greater understanding of tax issues than others their age. One reason for this lack of knowledge is that high school classes provide minimal, if any, information on taxes and general financial obligations Americans have once they enter the workforce. A recent article published by the Daily Titan, the newspaper for California State University, Fullerton, reported that the most common piece of information students know about taxes is the April 15th filing deadline (although depending on the year, it may fall on a different day or as in recent years, even a different month).¹⁰

In addition to our original research, we also reviewed surveys from various financial and accounting organizations including PricewaterhouseCoopers ("PwC") and Charles Schwab, and each had insightful data to contribute to our findings. Tellingly, PwC stated that 78 percent of teachers believe a financial curriculum should be included in high school,¹¹ while Charles Schwab noted that 86 percent of students wished they had been taught about taxes in elementary or high school.¹² Granted, elementary school may be early for financial literacy and tax filing lessons, but it would not be too early to introduce the concept of taxes and how they are beneficial to our country and to provide a general overview of how liabilities are calculated during government or math lessons. While early education would be beneficial, the key audience should be older students, and most middle and high school curricula has ample space to add a mandatory financial literacy course. In fact, the Home School Legal Defense Association wrote that most high schools allow one-to-three electives per year; thus, removing just one year's elective offering makes room for a financial literacy class that can teach numerous essential life skills, including tax planning and preparation.¹³

According to Phi Delta Kappan, a journal for high school educators, each state has significant discretion in molding their respective curriculum and standards.¹⁴ The IRS, as a federal department, can recommend certain education requirements, like a tax course, and the ability to work in conjunction with other federal agencies such as the Department of Education to provide...