WASHINGTON — Taxpayers across the U.S. can be guaranteed a free, public option to file federal tax returns online after the Internal Revenue Service announced plans Thursday to make the Direct File program eternal.
Pilot program offered According to the IRS, 12 states in March through April saw approximately 140,000 accepted returns this filing season, saving participants $5.6 million in tax preparation costs and helping filers receive $90 million in refunds.
States involved in this year’s pilot include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.
The agency is now inviting all 50 states to participate and will accept as many people as they want to apply, Treasury Secretary Janet Yellen and IRS Commissioner Danny Werfel told reporters on a call Thursday morning.
“We heard directly from hundreds of organizations across the country, over 100 members of Congress, individual Direct File users, and people interested in using Direct File. The clear message is that many taxpayers across the country want the IRS to provide free electronic filing options, Werfel said.
Yellen praised the user’s results questionnaire which showed that 90% of participants rated their experience as excellent or above average.
“They appreciated that it allowed them to fix mistakes quickly and there were no fees or upsells. The success of the Direct File pilot means there is now mighty demand for Direct File from taxpayers across the country,” Yellen said.
According to the agency’s Taxpayer Burden Survey, the average American spends $270 and 13 hours filing taxes.
Program “delivered”
The left-leaning Economic Security Project, which advocates tax breaks for low-income and middle-class households, praised the IRS’s decision to make eternal the program, which “delivered on the promise of free and simplified tax filing for taxpayers.”
“It was clear that taxpayers saw the value of Direct File both in making their lives easier and in showing what great government customer service looks like,” Adam Ruben, the organization’s vice president of campaigns and political strategy, said in a statement Thursday.
“We are already working with our partners in states across the country to support the expansion of Direct File next year so that more taxpayers can take advantage of free and simplified tax filing next tax season,” he said.
Democratic Sen. Ron Wyden of Oregon, the upper chamber’s top tax writer, in a statement Thursday praised the IRS announcement as “great news for taxpayers across the country who are fed up with being defrauded by huge tax preparation companies that routinely inflate prices for unnecessary services, overstate the quality of their products and offer indigent customer service.
Werfel said the IRS couldn’t provide cost estimates for expanding the program because the agency hasn’t yet learned how many states will join the program.
The total launch cost for the program this year was $31.8 million, including $24.6 million in IRS costs and $7.2 million in U.S. digital services costs associated with setting up the online platform, Werfel said.
Among the tens of billions of dollars that Congress authorized for the IRS in the 2022 Budget Reconciliation Act, otherwise known as Act on reducing inflation$15 million is earmarked to explore the ability for federal citizens to file their returns electronically, free of charge, directly to the government rather than through a third party.
This year’s pilot was only available to taxpayers with a basic tax situation, including W-2 income or straightforward credits and deductions, such as the child tax credit or student loan interest.
“Our goal is to gradually expand the scope of Direct File to support the most common tax situations, with a particular focus on tax situations impacting working families,” Werfel said.
Asked during a telephone interview whether the program’s success depends on who sits in the Oval Office next year, Werfel replied: “I truly believe that the IRS’s vision for the future of tax administration is unbiased.”
Opposition from the GOP
The free public program has faced fierce opposition from Republicans in Congress and GOP state officials who criticized considering it unnecessary,unconstitutional” and A danger to state tax revenues.
Many people cited the existing IRS Free File program, a regularly growing partnership between the federal agency and private tax preparation software companies that provide a free option to file a federal tax return.
According to the Treasury Inspector General in 2019, the 22-year-old program was riddled with problems, including low participation rates and “confusion and complexity” that led to millions of eligible taxpayers actually paying trading partners that were supposed to offer free service for the Tax Administration report.
2019 ProPublica investigation revealed a deliberate tactic by Free File participant Intuit, maker of TurboTax, to access a free cloud-based option.
Nearly two dozen state auditors, comptrollers and treasurers from 18 states have urged the IRS to “shut down” the modern Direct File pilot program because users could be confused about having to file a state return separately, resulting in a loss of state revenue.
This argument is based on the fact that many commercial tax preparation software companies and private tax preparers automatically encourage taxpayers to file their state returns after filing their federal return.
Government officials who signed the agreement on March 25 letter to the IRS came from Alaska, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Nebraska, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Utah, West Virginia and Wyoming.
Two Direct File pilot states — Arizona and New York — partnered with the nonprofit Code for America to do this integrate possibility of submitting a tax return free of charge in consultation with Direct File. The nonprofit reported that of state returns submitted using its tool, 98% were accepted.
Several state governments already offer free public electronic filing of state income tax returns, which users must separately access through dedicated state websites, including but not circumscribed to Alabama, Kansas, Kentucky AND Pennsylvaniathat offer the service regardless of income level. Some states, e.g California AND Iowahave income thresholds that allow you to apply for free.
