The effect of tax position and personal norms: An analysis of taxpayer compliance decisions using paper and software

Tax Software has become the predominant format used to prepare and file taxes in the U.S. Compared to filing paper returns, tax software significantly changes the reporting environment. For example, tax software uses tax position indicators that update a taxpayer's tax position (i.e. whether they will receive a refund or owe additional tax) in real time as they enter their tax information. This study uses an experiment to investigate how tax compliance decisions made when using tax software with a tax position indicator differ from those made when using paper forms. In addition, we investigate the extent to which taxpayer attitudes (personal norms) impact taxpayer compliance decisions in these two environments (paper v. software). We find that taxpayers using software with a tax position indicator report more (less) cash revenue depending on their “tax due” (“refund”) position, which has both beneficial and negative effects on tax compliance. In addition, we find that taxpayers are strongly influenced by their personal norms in their reporting decisions.