A new IRS program is helping its first users file their income taxes electronically. And it’s free
WASHINGTON — Texan Dixie Warden is quick to say that she is “not a numbers girl.” But as an early user of the government’s new free electronic tax filing system, Warden reports that she completed her taxes in about an hour this year using the program.
“I don’t want to call myself a dummy, but this is tax for dummies,” Warden said. The program asked her simple questions about her tax status, provided definitions for tax jargon, such as adjusted gross income, and had a chatbot ready to answer her questions.
The project, known as Direct File and launched this tax season on a limited basis by the IRS in twelve states, is in its pilot phase. Starting this week, eligible users can begin returns at any time, after previously only being available during certain hours.
If successful and scaled up for use by the general public, the program could dramatically change how Americans file their taxes and how much money they spend completing them. That is, if the agency can see the program through its development despite threats to its funding.
Warden, a 37-year-old IRS employee from Kyle, Texas, says she saved nearly $400 this tax season by filing her tax return with the government directly from her laptop at home, rather than paying for one of the commercial tax preparation services offered by millions of people use it. people. Individual taxpayers pay an average of $140 each year to prepare their tax returns.
Warden has worked for the IRS in various capacities over the past sixteen years, but she is not a tax expert. She is currently a specialist in human relations.
“The way it was laid out was so damn easy to understand and I can just see it being useful to so many millions of people,” she said.
While Warden’s praise for the program may seem logical given her employer, a broader test is now underway as people across the country try it.
The IRS began its pilot program in fits and starts in 12 states, around timed windows, for people with very basic W-2s, an employee’s paycheck, and a tax return.
The agency estimates that hundreds of thousands of taxpayers, mostly lower-income, will participate in the program during the 2024 filing season.
The slow rollout is partly intended to avoid a repeat of the disastrous rollout of the Obama administration’s health insurance program under the Affordable Care Act in 2013, which was riddled with crashes and website issues.
The IRS initially invited government employees to use the program, and Warden was the very first. Now the public is starting to participate.
Derek Wheeler, director of the Low-Income Taxpayer Clinic at the University of Florida Law School, said his clinic has referred fewer than a dozen clients to the Direct File system. Florida is one of twelve states participating in the pilot. That includes New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, Arizona, Massachusetts, California and New York.
“The benefit of having a program like this that is simple for users is enormous,” Wheeler told The Associated Press.
His legal clinic works with the IRS and selectively identifies clients who may be eligible to file their taxes through the program.
The IRS is facing intense pushback from private tax preparation companies that have made billions charging people to use their software and have spent millions lobbying Congress on the issue.
One of their biggest criticisms is that free tax preparation services already exist for people of all income levels and that developing the Direct File system will ultimately cost taxpayers billions of dollars.
Several organizations offer free online tax preparation assistance to taxpayers under certain income limits. There are also fillable forms available online at the IRS website, but the forms are complicated and taxpayers still need to calculate their tax liability.
An April 2022 Government Accountability Office report found that while 70% of taxpayers qualified for the IRS’ existing free filing program, only 3% of taxpayers actually use the service.
Critics include Grover Norquist, chairman of the conservative Americans for Tax Reform, who says the agency would be better off spending less money promoting the programs already available. He also claims that the IRS did not receive explicit permission from Congress to create the program.
The IRS was tasked with exploring how to create a “direct file” system as part of the money it received from the Inflation Reduction Act, which President Joe Biden signed into law in 2022. It gave the IRS nine months and $15 million to report on how such a program would work.
The IRS released its feasibility report last May and estimated that annual costs for a new program would range from $64 million for 5 million users to $249 million for 25 million users.
“They didn’t get permission for the pilot program and Congress has said, ‘Nobody authorized this. This is a violation of the law,” Norquist said.
IRS Commissioner Daniel Werfel emphasized at a recent hearing in the House of Representatives that the agency has both “a responsibility and an authority to provide taxpayers with a variety of approaches to meeting their tax obligations.”
Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, says free tax options in the United States are no match for what other countries offer their citizens. For example, Germany, Japan, Great Britain and other Organization for Economic Co-operation and Development countries all offer taxpayers some form of pre-filled tax document to approve, sign and return.
“This is not a problem that we have solved yet,” she said. “The US has a remarkably complex income tax system, but it is very clear that if this can be done in other countries, it is something that should be done here.”
Wheeler of the University of Florida adds that “it’s important to have as many options as possible for people to file their taxes and bring us closer to other states that send their taxpayers pre-filled forms.”
“We may never reach that point, but this is a start.”
For the program to continue to grow, it will need further funding under the Inflation Reduction Act, which included $80 billion for the IRS.
The Republicans in the House of Representatives are trying to recover some of the money. They built a $1.4 billion cut for the IRS into the debt ceiling and austerity package passed by Congress last summer. A separate deal would require another $20 billion from the IRS over the next two years, which could be diverted to other non-defense programs.
Warden says she hopes to use the program again next tax season, and that it will be expanded for others.
“I never had the confidence to do my own taxes,” she said. But after using Direct File, she said, “I feel foolish having to pay all that money every year.”