Free, direct reporting of federal taxes could soon be available across the United States. • Nevada Current

WASHINGTON — Taxpayers across the United States could be guaranteed a free public option to file their 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 to April attracted approximately 140,000 accepted returns this filing season and saved participants $5.6 million in tax preparation fees and helped filers to receive $90 million in refunds, according to the IRS.

States involved 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 welcome the number of signatures, Treasury Secretary Janet Yellen and IRS Commissioner Danny Werfel told reporters on a call Thursday morning.

“We have 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 Files. The clear message is that many taxpayers across the country want the IRS to provide fee-free electronic filing options,” Werfel said.

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

“They liked that it allowed them to quickly correct errors and that there were no fees or upsells. 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 taxes, according to the agency’s Taxpayer Burden Survey.

The “delivered” program

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

“It was clear that taxpayers saw the value of Direct File, both in making their lives easier and in demonstrating what great government customer service looks like,” Adam Ruben, vice president of campaigns and communications, said Thursday. the political strategy of the organization.

“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, simplified tax filing next season tax,” he said.

Democratic Sen. Ron Wyden of Oregon, the upper chamber’s top tax drafter, hailed the IRS announcement in a statement Thursday as “tremendous news for taxpayers across the country who are tired of being ripped off by large tax preparation companies who regularly use tax services.” charging for unnecessary services, touting the quality of their products, and providing lousy customer service.

Werfel said the IRS cannot provide an estimate of the cost of expanding the program because the agency has not yet learned how many states will join.

The cost of operating the program this year was $31.8 million, broken down into $24.6 million in IRS costs and $7.2 million in U.S. Digital Service costs to create the platform in line, Werfel said.

Of the tens of billions of dollars Congress authorized for the IRS in its Budget Reconciliation Act of 2022, also known as the Inflation Reduction Act, $15 million was set aside for the exploring a means for the public to electronically file federal returns directly to the government for free. rather than through a third party.

This year’s pilot program was only available to taxpayers with basic tax situations, including W-2 income or simple credits and deductions, like the child tax credit or student loan interest.

“Our goal is to gradually expand the reach of Direct File to support the most common tax situations, with a particular focus on tax situations that impact working families,” Werfel said.

Asked on the call whether the success of the program depends on who occupies the Oval Office next year, Werfel responded: “I sincerely believe that the vision that the IRS has for future tax administration is non-partisan. »

Republican opposition

The free public program has faced fierce opposition from congressional Republicans and state officials who have criticized it as redundant, “unconstitutional” and a threat to state tax revenue. State.

Many cited the already established IRS Free File program, an evolving partnership between the federal agency and private tax preparation software companies that offer a free option for filing federal returns.

The 22-year-old program is riddled with problems, including low participation and “confusion and complexity” that led millions of eligible taxpayers to pay business partners who were supposed to offer the free service, an inspector general says of the Treasury of 2019. for the report of the tax administration.

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

Nearly two dozen state auditors, comptrollers and treasurers from 18 states have urged the IRS to “stop” the new Direct File pilot program because users may be confused about having to file a tax return. state separately, which would result in a loss of revenue for the state.

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 return 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 and Utah. , West Virginia and Wyoming.

Two of the states in the Direct File pilot program – Arizona and New York – worked with the nonprofit Code for America to integrate a free state tax filing option in concert with Direct File. The nonprofit reported that of the state returns filed through its tool, 98% were accepted.

Several state governments already offer free public e-filing of state income tax returns, which users must access separately through dedicated state websites, including Alabama, Kansas, Kentucky, and Pennsylvania, which offer this service regardless of their income level. Some states, like California and Iowa, have income thresholds for free filing.