U.S. Treasury Secretary Janet Yellen and Gov. Josh Shapiro announced Tuesday that Pennsylvania is the latest state to join the Internal Revenue Service’s modern free tax preparation system.
“Taxpayers across the country have been paying for-profit companies hundreds of dollars a year to file their taxes, and too many eligible taxpayers have lost tax breaks that would have given them vital breathing room in their household budgets,” Yellen said Tuesday at a news conference in Philadelphia. “The Inflation Reduction Act gave us the opportunity to change that, and in less than two years since its passage, we have led a significant transformation at the Internal Revenue Service to dramatically improve the taxpayer experience.”
Twelve states signed up for the Direct File pilot program for the 2024 tax season, the Treasury Department said, attracting about 140,000 taxpayers who claimed $90 million in refunds and saved about $5.6 million in fees they otherwise would have paid to private tax preparation firms.
Taxpayers also liked the product and found it uncomplicated to apply, Yellen said, noting that 90% of users who responded to the question questionnaire rated their experience with Direct File as excellent or above average. “They appreciated the time it saved them. Filing allowed them to fix mistakes quickly, provided customer service, and there were no fees or upselling, and using Direct File increased public confidence in the Internal Revenue Service,” she added.
The IRS said in June it would make free filing eternal and invited states to participate. Of the tens of billions of dollars that Congress approved for the IRS in its fiscal 2022 budget reconciliation law, also known as the Inflation Reduction Act, $15 million was earmarked to study a way for people to file federal returns electronically for free directly to the government rather than through a third party.
“When we fought so hard for the Inflation Reduction Act two years ago, buried in this really monumental, transformative piece of legislation was a direct request from the IRS,” U.S. Rep. Brendan Boyle (D-1st District) said Tuesday. “Many of us on the Ways and Means Committee, where I sit, have been pushing for years to give the IRS more resources.” He said the most common complaint he’s heard from constituents over the years is about the IRS.
However, Republican members of Congress and state officials from the Republican Party have criticized free file program as unnecessary, “unconstitutional“and danger to the state’s tax revenues.
Many have pointed to the existing IRS Free File program, a partnership between the federal agency and private tax preparation software companies that offer free options for filing federal taxes. But that program has been rife with problems, and a 2019 ProPublica investigation revealed Deliberate actions by a participant in the Free File program, Intuit, the creator of TurboTax, to hide access to the free option.
Nearly two dozen auditors, comptrollers and state treasurers from 18 states the IRS insisted “close” the modern Direct File pilot program because users could be confused about the need to file a separate tax return, resulting in a loss of government revenue.
Boyle said Tuesday he would work to protect programs like Direct File in the federal budget, something that will be easier if Democrats regain their majority in the U.S. House of Representatives.
“When we talk about additional resources that we’ve put into the IRS, it’s about things like that. It’s about restoring the Internal Revenue Service,” Boyle said. “If these efforts are successful and in the future, maybe in the near future, money is taken away from the IRS, then things like Direct File are at risk.”
U.S. Senator Bob Casey (Democrat of Pennsylvania), who had the federal government called to make the program eternal and expand it to Pennsylvania, a statement Tuesday said Free File could save Pennsylvania residents $630 million in combined annual tax filing fees and additional tax credits claimed directly from the IRS.
“This program allows Americans to file their taxes with confidence and keep more of their hard-earned money,” Casey said.
Shapiro called the program a “groundbreaking event” and said it will be available to all Pennsylvania residents next tax season.
“It will give people easier access to their government, they will have the peace of mind that there are no bad orders, and it will save them hundreds, if not thousands, of dollars on software and other services that they may not have needed,” he said.
Ashley Murray from States Newsroom in Washington contributed to this report.
