Why do Americans have to file taxes, even if their only source of income is from a regular job?
One of the reasons, apart from historical, is that different people have different tax liabilities which the employer may not be aware of. For example, in the US we don't pay taxes in source on investment income, and there are many credits and deductions that we can't take. So if I have a child and some interest income from my savings account - employer's withholding will not match my actual tax liability. There are credits for children, additional taxes for the interest, and the actual tax brackets vary based on my marital status and filing options I chose. So even the same family of two people married will pay different amounts in taxes if they chose to file separate tax returns for each, than if they chose to file jointly on one tax return. For anyone who've lived anywhere else, like you and me, this system is ridiculously complex and inefficient, but for Americans - that works. Mainly for the reason of not knowing anything better, and more importantly - not wanting to know. Companies in the US will take care of paying a portion of your required income tax on your behalf based on some paperwork you fill out when starting work.  However, it is up to you as an individual to submit an income tax return.  This is used to ensure that you did not end up under or overpaying based on what your company did on your behalf and any other circumstances that may impact your actual tax owed. In my experience, the process is similar in Europe.  I think anyone who has a family, a house or investments in Europe would need to file an income tax return as that is when things start to get complex. Politics is certainly part of the equation, in two ways that I can think of. These don't necessarily reflect my views; just trying to explain as I see it. First, there are a lot of interests in having the current, convoluted tax system entrenched. ProPublica did a piece talking about the question you're asking, and Intuit, makers of the popular tax software TurboTax, is mentioned as someone who lobbied heavily to keep the kind of system you describe out. It's spun as increasing the size and cost of government (which, I guess, is true - someone has to do the work if you aren't filing) while opening up possibilities for error, but the piece portrays the companies as being more interested in preserving the status quo. Second, plenty of people don't like the idea that taxation is done automatically, out of sight and out of mind. An issue that illustrates this is airline pricing. Consumers don't like seeing a $19 fare advertisement and then finding out that they'll actually have to pay $50 after the taxes are added. However, those in the airline industry and those who are generally against taxes don't like the idea that a tax can be added without the consumer really knowing that the government was responsible for the price increase. You sometimes see this with gasoline prices, where taxes are built into the price per gallon. My home state of Pennsylvania recently raised the gas tax without anyone really noticing since the overall price was dropping dramatically at the time. Contrast that to Pittsburgh-area bars who were able to very specifically pin an alcohol tax on its creator. Point being, direct deposits with automatic deductions already take most of the thinking out of taxation. Those in that situation really only think about their income in terms of the amount that shows in their bank account. For some, that time of filing taxes is the one time a year where you actually get to reflect on the amount of money you're paying the government for its services. The more automatic taxation is and the less that the public thinks about it, the easier it is for the government to raise it without people noticing. One significant reason it makes sense for filing to be the default is home ownership rates.  I think far more so than investment income, Americans own homes: as there is a significant mortgage interest deduction, between that and investments a large number of Americans would have to file (about a third of Americans get the mortgage interest tax deduction, and a large chunk of the richest don't qualify but would have to file for investments anyway). We also have a very complicated tax code, with nearly everyone getting some kind of deduction.  Earned Income Tax Credit for the working poor (folks making, say, $30k for a family of 4 with a full-time job get several thousand dollars in refundable credits, for example), the Student Loan interest deduction, the above mortgage deduction, almost everyone gets something. Finally, your employer may not know about your family situation.  As we have tax credits and deductions for families based on number of children, for example, it's possible your employer doesn't know about those (if you don't get health insurance on their behalf, they may well not know).  Start reporting things like that separately... and you end up with about as much work as filing is now. you either tell your financial department about them (e.g. I used to get a student's tax discount), or you file them separately. But you don't have to file anything by default.  That is a comment connected to the question.  In the united states you can almost achieve this. 90% of the numbers on my tax form are automated. The W-2s are sent to the IRS, the 1099-s for my non retirement accounts are also sent. The two biggest items that take time are charities, and the educational benefits. Nobody has to claim every deduction they are entitled to. They must claim all the income, and decide to take the standard deduction. It would probably take less than an hour to finish the families taxes: both federal and state. For two reasons: 1- People are entitled to deductions and credits that your employer cannot possibly know. Only you as an individual know about your personal situation and can therefore claim these deductions and credits by filing income tax returns. 2- Me telling you that you made $100,000 last year is not the same as telling you that you made $125,000 last year, but someone took $25,000 out of your pocket. Tax season is the one time of the year when citizens know exactly what chunk of their hard earned money was taken by the government, creating more collective awareness about taxation and giving politicians a harder time when they propose raising taxes. "I think the key point that's making the other commenters misunderstand each other here is the concept of ""deductions"". I can only speak for the UK, but that's only a concept that business owners would understand in this country.  For things like child credits or low income tax credits, we don't get paid them at the end of the tax year, but into our bank accounts every couple of weeks all year round. Therefore, we have nothing to ""deduct"". If we work for a company and have business expenses, then the company pays for them. If we make interest on our savings, the bank pays it for us. We make money at our jobs, and the employer works out what taxes and national insurance we owe, based on a tax code that the government works out for us annually (which we can challenge).  To be fair, it's not like we're free from bureaucracy if we want to claim these benefits. There are often lots of forms if you want child benefit or disability allowances, for instance. We just apply as soon as we're eligible, rather than waiting to get a lump sum rebate. So it appears to be a very different system, and neither is inherently better than the other (though I'm personally glad I don't usually have to fill in a big tax return myself, which I only did one year when I was self employed). I'd be interested to know, since Google has let me down, which countries use the American system, and which the British or Czech." There are a few reasons: 1) Deductions and credits. We have a lot of them. While I suppose we could pass this information on to our employers for them to file, why would we want to? That just unnecessarily adds a middle-man as well as sharing potentially private information more than it needs to be shared. This is the one that effects the most people. 2) Income sources. While normal employment, contract work, and normal investment income already gets reported to the IRS, this is not true for all sources of income. For one, the U.S. is almost completely by itself on actually taxing income that its citizens earn outside of the U.S. While this policy is completely absurd, the only way for the government to know about such income is for the person to report it, since the IRS can't require foreign employers to send information to them. Also, barter income as well as other income that doesn't meet the qualifications for the payer to be required to inform the government requires the employee to self-report. Similarly, capital gains on things outside of normal investments (real estate, for instance) require self-reporting. Having said all of this, U.S. reporting requirements are absurd and illogical. For instance, the IRS already knows about all of my stock trading activity. My broker is required to report it to them. Yet, I still have to list out every single trade on my own return, which is really tedious and completely redundant. For charitable contributions, on the other hand, I only have to give the IRS the final total without listing out all of the individual donations, despite the fact that they don't have that information made available to them by another source. It makes no sense at all, but such is the federal government. One of the reasons is also general distrust to the government. Another one is that there exist special interest group which profits from the complicated scheme, keep adding special cases, and has stronger financial situation that the opponents of such complex scheme. People do not trust government, or companies, to act in their best interests. So they (we) waste huge amount of time and/or money to comply with byzantine income laws. In 2004 Democratic presidential primary, presidential candidate Wes Clark (who beyond being 4-star general has also master degree in economics from Oxford, and taught economics in West point) proposed similar scheme: for people with income under 50K, employer would do all the (simple) paperwork, if desired, and get return.  In the noise of the campaign, idea how to simplify taxes for half of the population was lost.  Funny how the only candidate in recent history who was both professor of economics (not MBA, which is about business and profits) and distinguished military hero, could not get any traction in Democratic party. A couple things. First of all, most people's MAIN source of income is from their job, but they have others, such as bank interest, stock dividends, etc. So that income has to be reported with their wage income. The second thing is that most people have deductions NOT connected with their job. These deductions reduce income (and generate refunds). So it's in their interest to file. Why is the US still working with paper checks when Europe went digital about a decade ago? Tax filing is just another area in which the US is lagging. Modernizing it costs money, and the US is quite close to bankruptcy (as seen by the repeated government shutdowns).  Also, the US tax code is quite complicated. For instance, I doubt there's anyone who has a full and complete list of all allowed deductions.  Some comments wonder about multiple incomes. This doesn't require tax filing either. My local tax authority just sends me a combined statement with data from 2 employers and 2 banks, and asks me to confirm the resulting payment. This is possible because tax number usage is strictly regulated. SSN abuse in the US presumably makes this problematic.
This person must pay taxes in both the overseas country and in the U.S. This is unusual; generally, only the U.S. demands this. Depending on the specific country, he would likely not be taxed twice as the U.S. generally recognises tax paid in a different country. Note there are some gotchas, though. For example, although Canada has a generally higher tax scheme than the U.S., you may still end up owing tax if you use the Tax-Free Savings Account system in Canada, as that is not recognised in the U.S. As to whether or not this person should form a company, that is far too broad a question. It's going to depend in large part on the tax situations of the countries involved. This person needs to consult an accountant specialising in this situation. That is, on personal versus business tax and on tax involving U.S. citizens. Yes, this person can and indeed must file and pay taxes in the U.S., from outside the U.S. "The tax system in general, and income tax in particular, is used for several purposes at once. One of those purposes is to raise money to run the government. It isn't the only purpose of income tax, and income tax isn't the only source of money to run the government. Try a thought experiment: let's say it costs $10,000 per person per year to run the government. (It might actually cost far more or far less, that's not the point.) A super simple tax system would just ask each person for $10,000. But such a system isn't fair. Some people don't even earn $10,000 so they are literally not able to pay that. Some people, who earn a lot, can easily afford to pay more. So a still-pretty simple approach asks each person to pay a particular percentage of their income, and the hope is that this will add up to enough to run the government. This still doesn't feel fair to everyone - 10% of your income is hard to find when you're spending it all on rent and food, and easy to find when you have way more than you ""need"". So many countries have what's called a ""progressive"" system of income tax where you pay no tax on the first X of your income, then a small percentage on the next Y, a larger percentage on the next Z and so on.  But you asked about business profit. Some places don't tax business profits at all - they just collect income taxes on people once the money reaches them as salary or dividends. Other places do. Just as a person who doesn't earn any income can't send the government money, a business that spent more on expenses than it brought in as revenue can't send the government money either. So the tax is on profit. That seems fairer to most people anyway. Things then get even more complicated for both business and personal income taxes because the government uses the system to encourage certain behaviours and to help people facing hard times. If you want to encourage people to get training and move into higher paying jobs, you might make tuition tax deductible. Most countries give a tax deduction for each small child you have. This isn't because people with children use less of the services government provides, is it? Instead it's an acknowledgement that people with children generally have less money to spend. Or an encouragement to have children, or something. Tax motivations are complicated.  If you charged all businesses a flat tax regardless of whether they were making or losing money, people might be hesitant to start companies that lose money at first. There might be less entrepreneurship in that country. If instead you only tax profits, it feels fairer and more people are likely to join in. So that's what most governments do. Is the imaginary business owner who is not turning a profit somehow getting a free ride? They are still paying tax. If they took any salary for themselves, there was personal income tax on that. Everything the company bought, it paid sales tax on. There may have been excise taxes and such in other things they bought. The economic activity of the business has been driving the wheel of the local economy and spinning off some taxes at various levels that whole time. Whether the business itself is chipping in some corporate income tax too may not end up being particularly relevant. Example: a sole proprietor has revenue of $100,000 and spends $10,000 on supplies and such. If the salary to the owner is $89,000 the company has a $1000 profit which it pays tax on. If the salary to the owner is $91,000 the company has a $1000 loss and doesn't pay tax (and may be able to use the loss to reduce taxes in a future year.) So what? The owner is paying personal income tax on roughly $90,000. The government is getting the support it needs. Yes, some owners do all the ""encouraged"" things so that some income is not taxed either in the business or the personal sphere. That is presumably what the government wanted when it set those things up as deductions. Making charitable contributions, hiring new employees, building new facilities ... essentially the government is paying the business to do those things because they're good for the country. The overall government budget (funded by personal and corporate income tax along with sales tax, excises taxes etc) is supposed to achieve certain goals which include roads and schools but also job creation and the like. This is one of the ways they do that." Corporations are taxed on their profits.  Multinational corporations can report their profits in any country they have operations, regardless of where they made the sale.  In other words, it's impossible to nail down exactly where a company 'made it's money'.  So the US doesn't try, we just tax them on earnings everywhere, minus taxes paid elsewhere.  edit for clarity In Sri Lanka, this is the normal practice. We, employees are free from the burden of paying tax for the income we get as a salary. Because that part is been taken care of by the company/employer. "If a person is not a U.S. citizen and they live and work outside the U.S., then any income they make from a U.S. company or person for services provided does not qualify as ""U.S. Source income"" according to the IRS.  Therefore you wouldn't need to worry about withholding or providing tax forms for them for U.S. taxes.  See the IRS Publication 519 U.S. Tax Guide for Aliens." Driver's license isn't relevant. If NYS considers you a part-year resident, they assess income tax on a pro rata basis. NY is broke now, so expect them to be really obnoxious about it if you make a lot of money. California probably has a similar policy. If you really make a lot of money, the demands of the states in these matters are insane. I've read of cases where a state has actually demanded that an individual provide documentation of their in-/out-of-state status for every day of the year! Because the question puts moral obligations aside, I'll answer from the practical point of view. There are two reasons for declaring side income, even cash income. If you buy a house in a year or two, the additional income will help qualify you for a mortgage.  The IRS has ways to discover that you earned the money.  a. A client might be audited. If the client deducts the cost of your services from their income, they could be asked for proof that they paid you. Suppose they saved ATM receipts that show the withdrawals of cash used to pay you, and kept records that document the dates they paid you. The IRS might want to ask you if you were paid by the client on those dates, and how much. The asking might be in the form of an audit, and you'd have to lie to the IRS to avoid penalty. b. A client might develop a grudge against you and report you to the IRS. Someone could do this even if they don't know for sure that you don't declare the income. If you were interviewed or audited, you'd have to lie to the IRS to avoid penalty. c. You could fall prey to an algorithm. There might be one that compares deductions and income. If you run a crazy-high ratio year after year, you could be flagged for audit. Once again, you'd have to lie to avoid penalty. Plenty of retired people do stay in the US for longer than 60 days and don't pay taxes. In this IRS document 60 days stay appears to be the test for having a 'substantial presence' in the US, which is part of the test for determining residency. However the following is also written: Even if you meet the substantial presence test, you can be treated as a nonresident alien if you are present in the United States for fewer than 183 days during the current calendar year, you maintain a tax home in a foreign country during the year, and you have a closer connection to that country than to the United States.  In other words, if your property in the US is not your main one, you pay tax in another country, and you stay there less than half the year, you should be treated as a non-resident (I am not a lawyer and this is not advice). This IRS webpage describes the tax situation of nonresident aliens. As I understand it, if you are not engaged in any kind of business in the US and have no income from US sources then you do not have to file a tax return. You should also look into the subject of double tax agreements. If your home country has one, and you pay taxes there, you probably won't need to pay extra tax to the US. But again, don't take my word for it. "There are two different issues that you need to consider: and The answers to these two questions are not always the same.  The answer to the first is described in some detail in Publication 17 available on the IRS website. In the absence of any details about your situation other than what is in your question (e.g. is either salary from self-employment wages that you or your spouse is paying you,  are you or your spouse eligible to be claimed as a dependent by someone else, are you an alien, etc),  which of the various rule(s) apply to you cannot be determined, and so I will not state a specific number or confirm that what you assert in your question is correct.  Furthermore, even if you are not required to file an income-tax return, you might want to choose to file a tax return anyway. The most common reason for this is that if your employer withheld  income tax from your salary (and sent it to the IRS on your behalf) but your tax liability for the year is zero, then, in the absence of a filed tax return, the IRS will not refund the tax withheld to you. Nor will your employer return the  withheld money to you saying ""Oops, we made a mistake last year"".  That money is gone: an unacknowledged (and non-tax-deductible) gift  from you to the US government. So, while ""I am not required to file an income tax return and I refuse to do voluntarily what I am not  required to do""  is a very principled stand to take, it can have monetary consequences. Another reason to file a tax return even when one is not required to do so is to claim the Earned Income Tax Credit (EITC) if you qualify for it. As Publication 17 says in Chapter 36, qualified persons must File a tax return, even if you:   (a) Do not owe any tax,   (b) Did not earn enough money to file a return,   or   (c) Did not have income taxes withheld from your pay. in order to claim the credit. In short, read Publication 17 for yourself, and decide whether you are required to file an income tax return, and if you are not, whether it is worth your while to file the tax return anyway. Note to readers preparing to down-vote: this answer is prolix and says things that are far too ""well-known to everybody"" (and especially to you), but please remember that they might not be quite so well-known to the OP." What a coincidence! This was an exam question for my business law class.  The main reason why individuals are not allowed to deduct expenses is because income tax revenue would be zero.  The reason being, if an individual is allowed to deduct expenses he/she would spend 100% of their income and deduct it all on their tax returns, which would mean he/she would pay virtually no income tax. This is bad for the gov't and the economy.  It's bad for the gov't because they loose tax revenue, and it's bad for the economy because people would not have any savings for tough times, which can send the economy into a negative spiral. From the Massachusetts Department of Revenue:   1st - Massachusetts Source Income That is Excluded   Massachusetts gross income excludes certain items of income derived from sources within Massachusetts: non-business related interest, dividends and gains from the sale or exchange of intangibles, and qualified pension income. 2nd - Massachusetts Source Income That is Included:   Massachusetts gross income includes items of income derived from sources within Massachusetts. This includes income: 3rd - Trade or business, Including Employment Carried on in Massachusetts:   A nonresident has a trade or business, including any employment carried on in Massachusetts if: A nonresident generally is not engaged in a trade or business, including any employment carried on in Massachusetts if the nonresident's presence for business in Massachusetts is casual, isolated and inconsequential. A nonresident's presence for business in Massachusetts will ordinarily be considered casual, isolated and inconsequential if it meets the requirements of the Ancillary Activity Test (AAT) and Examples. When nonresidents earn or derive income from sources both within Massachusetts and elsewhere, and no exact determination can be made of the amount of Massachusetts source income, an apportionment of income must be made to determine that amount considered Massachusetts gross income. 4th - Apportionment of Income:   Apportionment Methods:   The three most common apportionment methods used to determine Massachusetts source income are as follows:   Gross income is multiplied by a:   So if you go to Massachusetts to work, you have to pay the tax.  If you collect a share of the profit or revenue from Massachusetts, you have to pay tax on that.  If you work from Oregon and are paid for that work, then you don't pay Massachusetts tax on that.  If anything, your company might have to pay Oregon taxes on revenue you generate (you are their agent or employee in Oregon).   Does the answer change depending on whether the income is reported at 1099 or W-2? This shouldn't matter legally.  It's possible that it would be easier to see that the work was done in Oregon in one or the other.  I.e. it doesn't make any legal difference but may make a practical difference.   All this assumes that you are purely an employee or contractor and not an owner.  If you are an owner, you have to pay taxes on any income from your Massachusetts business.  Note that this applies to things like copyrights and real estate as well as the business.   This also assumes that you are doing your work in Oregon.  If you live in Oregon and travel to Massachusetts to work, you pay taxes on your Massachusetts income in Massachusetts. "IRS Pub 554 states (click to read full IRS doc):  ""Do not file a federal income tax return if you do not meet the filing requirements and are not due a refund. ... If you are a U.S. citizen or resident alien, you must file a return if your gross income for the year was at least the amount shown on the appropriate line in Table 1-1 below. "" You may not have wage income, but you will probably have interest, dividend, capital gains, or proceeds from sale of a house (and there is a special note that you must file in this case, even if you enjoy the exclusion for primary residence)" "If you're ""living off the land"" and make no money, then you don't have to file.  Though you might be able to actually make money through credits and the like if you do file. If you've lost more than you've made, then you'll probably need to file since someone will have needed to report that they paid you (W-2 or 1099-MISC).  If the IRS receives a form saying that you made X and you don't file, they aren't going to just take your word for it that you lost more than you made, right?  That, and if you want a refund, you'll almost certainly need to file to get it." The United States taxes nonresident aliens on two types of income: First, a nonresident alien who is engaged in a trade or business in the United States is taxed on income that is effectively connected with that trade or business. Second, certain types of U.S.-source payments are subject to income tax withholding. The determination of when a nonresident alien is engaged in a U.S. trade or business is highly fact-specific and complex. However, keeping assets in a U.S. bank account should not be treated as a U.S. trade or business. A nonresident alien's interest income is generally subject to U.S. federal income tax withholding at a rate of 30 percent under Section 1441 of the tax code. Interest on bank deposits, however, benefit from an exception under Section 1441(c)(10), so long as that interest is not effectively connected with a U.S. trade or business. Even though no tax needs to be withheld on interest on a bank deposit, the bank should still report that interest each year to the IRS on Form 1042-S. The IRS can then send that information to the tax authority in Brazil. Please keep in mind that state and local tax rules are all different, and whether interest on the bank deposits is subject to state or local tax will depend on which state the bank is in. Also, the United States does tax nonresident aliens on wages paid from a U.S. company, if those wages are treated as U.S.-source income. Generally, wages are U.S.-source income if the employee provides services while physically present in the United States. There are a few exceptions to this rule, but they depend on the amount of wages and other factors that are specific to the employee's situation.  This is an area where you should really consult with a U.S. tax advisor before the employment starts. Maybe your company will pay for it? "Do not store credit cards on your servers! You will get into HUGE trouble if they get stolen.  Instead, the whole credit card transaction should be done in a ""frame"" on a web that is handle by a credit card processor you chose. Once the transaction is finished, you get a code for the credit card number (masked credit card number) that no-one can convert back to a credit card number (except the processor).  When you need to charge more or give refund, you use that code to tell the processor what credit card to make the charges/credits to."