IRS to launch free tax filing option, posing possible threat to TurboTax
- The IRS is introducing a free tax filing program, Direct File, set to pilot in 13 states, aiming to provide an alternative to existing tax preparation services.
- While some industry players raise concerns over the effectiveness of this government initiative, the IRS views it as an added option for taxpayers.
- Funding boosts for the IRS have been directed towards improving taxpayer services and goals include digitizing all paper-filed returns by 2025.
The Internal Revenue Service (IRS) is gearing up to launch its new tax filing program, Direct File. This innovative initiative aims to offer a streamlined tax filing solution, and a pilot version is slated to be available to select taxpayers across 13 states next year.
While Direct File has the potential to stand alongside established tax preparation entities like H&R Block and TurboTax, the current scope of the program remains focused. It will cater primarily to taxpayers in the specified 13 states who meet certain tax situations.
It's estimated that a substantial number of taxpayers will be motivated to explore this nascent platform.
However, Direct File's introduction hasn't been without skepticism. Some industry veterans question the ability of this government-driven system to provide an experience that rivals existing services. Emphasizing the program's intent, IRS representatives have clarified that Direct File is intended to be an additional option. Taxpayers still have the freedom to choose their familiar tax professionals or utilize existing programs such as the Free File service provided by multiple private firms.
The pilot's outcome will offer the IRS valuable data to gauge the viability of broadening this government-operated tax filing system in the future.
For those curious about the pilot's reach, Direct File will be available to taxpayers in states including Arizona, California, Massachusetts, and New York for the 2024 tax season. These states have decided to align their tax processes with the Direct File framework. Though the pilot focuses on individual federal tax returns, upon finalizing these, users will be guided to resources to help them with state tax filings. Residents from nine other states without state income tax might also be eligible to join this trial.
The specifics about which taxpayers in these 13 states can access Direct File are still being fine-tuned. It's expected that those with income declarations on a Form W-2 and who avail of credits such as the Earned Income Tax Credit and the Child Tax Credit will be within the eligible bracket.
Addressing the challenges of the existing tax infrastructure, recent allocations to the IRS are set to boost its operational capabilities. These changes have led to noticeable improvements in taxpayer services, with recent progress including the ability to handle more calls, significantly reducing waiting times. In line with modernizing operations, the IRS has set an ambitious goal: to digitize all paper tax filings by 2025. This change could lead to more efficient processing and quicker refunds.
Although the planned investment in the IRS is substantial, concerns have been voiced regarding its impact on average income earners. Assurances have been provided that this boost in funding won't translate to more frequent audits for typical earners.
