WASHINGTON — Taxpayers across the United States could be guaranteed the free ability to file their federal tax returns online after the Internal Revenue Service (IRS) announced plans Thursday to make its Direct File program eternal.
The pilot program offered Across 12 states, about 140,000 tax returns were approved from March to April this tax filing season, saving participants $5.6 million in tax preparation costs and helping taxpayers receive $90 million in refunds, according to the IRS.
States participating in this year’s pilot included 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 consider as many applications as possible, US Treasury Secretary Janet Yellen and IRS Commissioner Danny Werfel said in a conference call with reporters on Thursday morning.
“We’ve heard directly from hundreds of organizations across the country, more than 100 members of Congress, individual Direct File users and those interested in using Direct File. The clear message is that many taxpayers across the country want the IRS to offer electronic filing options for free,” Werfel said.
Yellen praised the results of a user Opinion poll It emerged that 90% of participants rated their experience as excellent or above average.
“They appreciated that it allowed them to fix errors quickly and that there were no fees or upselling involved. The success of the Direct File pilot means there is now strong demand for Direct File from taxpayers across the country,” Yellen said.
The average American spends $270 and 13 hours filing his or her tax return, according to the agency’s Taxpayer Burden Survey.
The program has delivered
The left-leaning Economic Security Project, which advocates for tax credits for low- and middle-income households, praised the IRS’s decision to make the program eternal, which it said “delivered on the promise of a free and simplified tax filing for taxpayers.”
“It was obvious that taxpayers recognized the value of Direct File because it made their lives easier and showed them what good customer service from government 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 the free and simplified tax filing next tax season,” he said.
Democratic Senator Ron Wyden of Oregon, the House’s top tax expert, praised the IRS announcement in a statement Thursday as “great news for taxpayers across the country who are tired of being ripped off by big tax preparation firms that routinely overcharge for unnecessary services, overstate the quality of their products and provide lousy customer service.”
Werfel said the IRS could not provide an estimate of the cost of expanding the program because the agency does not yet know how many states would participate.
The cost of running the program this year totaled $31.8 million, including $24.6 million for the IRS and $7.2 million for the U.S. Digital Service to create the online platform, Werfel said.
Among the tens of billions of dollars Congress allocated to the IRS in its 2022 budget reconciliation bill, also known as Inflation Reduction Act$15 million was allocated to research a way for the public to submit their tax returns directly to the government electronically and free of charge, without having to go through a third party.
This year’s pilot program was available only to taxpayers with basic tax situations, including W-2 income or basic 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 cover the most common tax situations, with a particular focus on tax situations that affect working families,” said Werfel.
When asked whether the success of the program depends on who sits in the Oval Office next year, Werfel replied: “I firmly believe that the IRS’s vision for future tax administration is bipartisan.”
Opposition from the GOP
The free public program faced fierce opposition from Republican congressmen and Republican state officials, who criticized it as superfluous, “unconstitutional” and a Danger to the state’s tax revenue.
Many pointed to the already established IRS Free File program, an ever-evolving partnership between the federal agency and private tax software companies that offer the ability to file tax returns for free.
This 22-year-old program is riddled with problems, including low participation and “confusion and complexity” that resulted in millions of eligible taxpayers actually paying the commercial partners that were supposed to provide the free service, according to a 2019 Treasury Department inspector general for tax administration. report.
A 2019 ProPublica investigation revealed targeted tactics by Free File participant Intuit, the maker of TurboTax, to enable cloud access to the free option.
Nearly two dozen auditors, controllers and treasurers from 18 states called on the IRS to “terminate” the recent Direct File pilot program because users could be confused by having to file a separate state tax return, resulting in lost revenue for the state.
This argument is based on the fact that many commercial tax preparation software companies and private tax preparers automatically ask taxpayers to complete their state tax returns after they file their federal tax return.
The state officials who on March 25 letter IRS members 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 of the states in the Direct File pilot program – Arizona and New York – worked with the nonprofit organization Code for America to integrate a free option for filing state tax returns in conjunction with Direct File. The nonprofit reported that 98% of state tax returns filed through its tool were accepted.
Several state governments already offer free electronic filing for state income tax returns, which users must access separately through special state websites, including Alabama, Kansas, Kentucky And Pennsylvaniathat offer the service regardless of income level. Some states, such as California And Iowahave income limits for free filing.
