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Tuesday, April 23, 2024

IRS will pilot free, direct tax filing in 2024

The IRS will test a free tax filing service in 2024 for a subset of lucky taxpayers in as many as 13 states, the agency announced today. Direct File, as the service is called, is a shot across the bows of Turbotax, H&R Block, and other paid tax prep services, whose owners have resisted free and simple tax filing for decades.

“This is a critical step forward for this innovative effort that will test the feasibility of providing taxpayers a new option to file their returns for free directly with the IRS,” said IRS Commissioner Danny Werfel in a press release announcing the news.

The program is more or less a direct result of funding provided by the 2022 Inflation Reduction Act, through which $15 million was earmarked for the purpose of exploring and implementing a simple, free, government-provided tax filing service.

Over the last year and a half, the IRS has been building out the pilot program, which it characterizes as being “one more potential option” on the continuum from self-managed Free File, to commercial products like Turbotax, to a tax prep professional.

The IRS describes Direct File as “a mobile-friendly, interview-based service” available in English and Spanish, intended for people with simpler tax situations like W-2s and common income credits and deductions. Whether the interviews are with actual people or some kind of automated or semi-automated process is unclear. But this, like many of its specifics, will likely change as the agency receives feedback from this limited scale pilot.

Arizona, California, Massachusetts, and New York are the four states that are integrating with Direct File for 2024 (i.e. the 2023 tax year); Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming “may also be eligible,” due to not having state income tax, but it is not final. Every state was given the opportunity to participate in the Direct File program, but not all were “in a position to join.”

Among the residents of these states, a limited number of individuals with “relatively simple returns” will have the opportunity to try Direct File. This will in turn “allow the IRS to evaluate the costs, benefits and operational challenges associated with providing a voluntary Direct File option to taxpayers.” In software terms, we’d probably call this an alpha.

Intuit and others which have surreptitiously fought against simple, free, and transparent tax filing for many years (as ProPublica documented not long ago) are no doubt seething and scheduling emergency meetings. Like broadband and mobile companies, public opinion has increasingly turned against them as the predatory nature of their services and lobbying has become obvious. When a free anime dating sim can do your taxes as well as a billion-dollar company, the worm has turned.

Expect to hear more about this program as tax season approaches.

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