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Free instant federal tax filing could soon be offered across the US. • Ohio Capital Journal

WASHINGTON — Taxpayers in the United States could be guaranteed a free public option to file federal tax returns online as the Internal Revenue Service announced plans Thursday to make its Direct File program permanent.

The pilot program, offered in 12 states from March through April, generated approximately 140,000 accepted returns this filing season and saved participants $5.6 million in tax preparation costs and helped filers receive $90 million in refunds, the IRS said.

The states involved in this year’s pilot were 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 take into account however many applications come, 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, 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 options to file electronically at no cost,” Werfel said.

Yellen touted the results of a user survey showing that 90% of participants rated their experience as excellent or above average.

“They appreciated that this allowed them to quickly fix errors and that there were no fees or upsells involved. The success of the Direct File pilot means there is now strong 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 their taxes.

The program ‘delivered’

The left-leaning Economic Security Project, which advocates tax breaks for low-income and middle-class households, praised the IRS’ decision to make permanent the program that “delivered on the promise of free and simplified tax filing for taxpayers.”

“It was clear that taxpayers saw the value of Direct File, both to make their lives easier and to demonstrate what great government customer service looks like,” said Adam Ruben, the organization’s vice president of campaigns and political strategy. , in a statement on 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 benefit from free and simplified tax filing next tax season,” he said.

Democratic Sen. Ron Wyden of Oregon, the House’s top tax writer, praised the IRS announcement in a statement Thursday as “great news for taxpayers across the country who are tired of being ripped off by the big tax preparation companies that routinely charge charging for unnecessary services, monitoring the quality of their products and providing poor customer service.”

Werfel said the IRS cannot provide an estimated cost for expanding the program because the agency has yet to learn how many states will jump on board.

The cost to implement the program this year totaled $31.8 million, which amounts to $24.6 million in IRS costs, and $7.2 million in US Digital Service costs to create the online platform, Werfel said .

Of the tens of billions of dollars that Congress authorized for the IRS in its 2022 Budget Reconciliation Act, also known as the Inflation Reduction Act, $15 million was set aside to explore a way for the public to file free, no-cost federal returns directly with to submit to the government. instead of through a third party.

This year’s pilot program was only available to taxpayers with a basic tax situation, including W-2 income or simple 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 that impact working families,” Werfel said.

When asked on the call whether the program’s success depends on who is in the Oval Office next year, Werfel said, “I truly believe that the vision that the IRS has for the future of tax administration is nonpartisan.”

Opposition of the Republican Party

The free public program was fiercely opposed by Republicans in Congress and state Republican Party officials, who criticized it as unnecessary, “unconstitutional” and a threat to state tax revenues.

Many mentioned the pre-existing IRS Free File program, a regularly evolving partnership between the federal agency and private tax preparation software companies that offer a free option for filing federal returns.

That 22-year-old program is riddled with problems, including low participation and “confusion and complexity” that have led to millions of eligible taxpayers actually paying the commercial partners that would offer the free service, according to a government inspector general. Ministry of Finance from 2019. for the Tax Authorities report.

A 2019 ProPublica investigation revealed deliberate tactics by Free File participant Intuit, maker of TurboTax, to gain access to the free option through the cloud.

Nearly two dozen state auditors, comptrollers and treasurers from 18 states urged the IRS to “shut down” the new Direct File pilot program because users might be confused about having to file a state return separately, which would result 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 prompt taxpayers to complete their state returns after filing the federal return.

The state officials who signed the March 25 letter to the IRS were 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 Direct File program’s pilot states – Arizona and New York – partnered with the nonprofit Code for America to integrate a free tax filing option in partnership with Direct File. The nonprofit reported that 98% of state returns filed through its tool were accepted.

Several state governments already offer free public electronic filing of income tax returns, which users must access individually through special state websites, including Alabama, Kansas, Kentucky and Pennsylvania, which offer the service regardless of income level. Some states, such as California and Iowa, have income thresholds for free filing.

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