- The IRS is testing a system that would allow taxpayers to file federal tax returns for free online directly with the agency, launching a pilot program for the 2024 filing season.
- Nearly three-quarters of taxpayers have expressed interest in the free direct deposit system offered by the IRS, according to a survey conducted by the agency.
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The IRS is testing a system that would allow taxpayers to file federal tax returns for free online directly with the agency, with a pilot program launching for some filers next year.
Known as Direct File, the pilot program will begin during the 2024 application season, following recent testing and a feasibility report, as authorized by the Inflation Reduction Act in 2022.
According to the report, Direct File would cost an estimated $64 million to $249 million annually, depending on the number of reviewers and the complexity of returns.
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“The report shows that the majority of taxpayers are interested in using a tool provided by the IRS to prepare and file their taxes,” IRS Commissioner Daniel Werfel told reporters on a conference call Tuesday.
Nearly three-quarters of taxpayers have expressed interest in the IRS’s free filing system, which is popular with younger applicants, those with limited English proficiency and taxpayers, according to a 2022 survey cited in the report.
While some Democrats and consumer advocates have pushed for a direct filing system for years, there has already been opposition from Republicans and the tax preparation industry.
“The IRS live e-file beta set to begin in January 2024 continues to be a troubleshooting solution,” a spokesperson for H&R Block said in a statement. “With more than 30 organizations already offering free tax preparation, this pilot model is unnecessary and faces significant hurdles to providing comprehensive tax preparation services.”
Free File Alliance executive director Tim Hugo has also criticized the IRS plan. “Free File has been provided to the federal government at zero cost for more than twenty years; thus, it is baffling that the Treasury Department and the IRS are willing to pay tens—even hundreds—of millions of dollars annually to create a minimum deposit option for the American taxpayer.”
It is a watershed moment for the tax system.
Vice Chairman of the Board of Directors of Alliantgroup
And while similar systems have been implemented in other countries, there are ongoing concerns about cybersecurity and taxpayer compliance.
“It’s a watershed moment for the tax system,” said Mark Iverson, a former IRS commissioner and current vice president at Alliant Group. “And I think the government has to proceed very carefully.”
Currently, taxpayers with an adjusted gross income of $73,000 or less for 2022 can use Free File, a public-private partnership between the IRS and the Free File Alliance, to file federal returns for free. But the program has not been widely used. Nearly 70% of taxpayers qualify for the free file, but only 2% have used it during the 2022 filing season, according to the National Taxpayer Advocate.
Despite the low participation rate, Werfel said the IRS remains “strongly committed” to a variety of filing options for low-income earners, including Free File, which has expanded its partnership with the IRS through 2025.
“Taxpayers will always have choices about how they file their taxes,” Werfel said in a phone call Tuesday. “They can use tax software. They can use a trusted tax professional. They can use a paper tax return. We’d rather file them electronically, sure, but they have that option.”
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