Tax Withholding and Tax Compliance: Evidence from a Framed Field Experiment

Although tax withholding is a central component of the US income tax system, there is a paucity of research that explores the relationship between tax withholding and subsequent tax reporting. Using a framed field experiment with working adults and deliberate framing, this study looks directly at this nexus. Briefly, we find interesting asymmetries related to tax position, in particular that tax under-reporting is increasing in the level of (possibly) expected as well as unanticipated tax under-withholding, but is invariant to the level of tax over-withholding. Further, we find that better information on tax liability provided by an information “service” only reduces tax under-reporting by those in an under-withholding position. Taxpayer experiences (from outside the lab) and characteristics are strongly tied to experiment behavior. JEL Classifications: H21, H26, C91, C92