IRS makes free online tax preparation permanent, and for all states and DC

[lpetrich]

U.S. Department of the Treasury, IRS Announce Direct File as Permanent Free Tax Filing Option, All 50 States and D.C. Invited to Join in Filing Season 2025 | U.S. Department of the Treasury - May 30, 2024

Today, the U.S. Department of the Treasury and Internal Revenue Service (IRS) announced that Direct File will be a permanent, free tax filing option and invited all 50 states and the District of Columbia to join in Filing Season 2025. This announcement follows a successful Pilot Program that saw 140,000 taxpayers claim more than $90 million in refunds and save an estimated $5.6 million in filing costs.

That pilot program was for AZ, CA, FL, MA, NH, NV, NY, SD, TN, TX, WY, and it had several limitations.

• Income: employment, unemployment compensation, Social Security benefits, at most $1500 from interest or US savings bonds or Treasury bills. Limited for over $150,000 last year, and not usable for over $200,000 last year.
• Deductions: standard but not itemized.
• Health insurance: employer, Medicare, Veterans Affairs, private that one has bought oneself, Medicaid, Children's Health Insurance Program (CHIP).
• Tax credits: child, earned income, other dependents.

IRS makes free tax return program permanent and is asking all states to join in 2025 | AP News

The agency also is inviting all states with a state income tax to sign up and help people file their state returns for free. During the 2024 pilot, tax agencies in Arizona, Massachusetts, California and New York helped people directly file their state taxes.

IRS Commissioner Danny Werfel said the IRS will report later this year on how many states plan to participate in the program in 2025.

...
“The IRS has been underfunded for decades, so taxpayers haven’t gotten the support they deserve,” Treasury Secretary Janet Yellen told reporters in a call Thursday. “Thanks to the Inflation Reduction Act, we’re changing this.” The IRS is part of the Treasury Department.

The pilot program had lots of restrictions of what taxes one could do online, and I'm not going to speculate about what restrictions that the IRS will lift.

 

[lpetrich]

The Direct File pilot program has gotten lots of good reviews: Reviews of IRS Direct File for free tax prep are in. Here’s what taxpayers say. - MarketWatch - "‘It was the fastest I’ve ever done my taxes,’ says one user."

But why did it take so long?

How the Maker of TurboTax Fought Free, Simple Tax Filing — ProPublica - March 26, 2013, 5 a.m. EDT - "Intuit, producer of the top-selling tax software, has opposed letting the government do your taxes for free – even though it could save time and headaches for millions of filers."

Imagine filing your income taxes in five minutes — and for free. You'd open up a pre-filled return, see what the government thinks you owe, make any needed changes and be done. The miserable annual IRS shuffle, gone.

,,,
Intuit argues that allowing the IRS to act as a tax preparer could result in taxpayers paying more money. It is also a member of the Computer & Communications Industry Association (CCIA), which sponsors a "STOP IRS TAKEOVER" campaign and a website calling return-free filing a "massive expansion of the U.S. government through a big government program."

TurboTax Maker Linked to 'Grassroots' Campaign Against Free, Simple Tax Filing — ProPublica - April 14, 2014, 9:33 a.m. EDT - "Intuit and its allies are continuing to work against proposals for what’s known as return-free filing."

Over the last year, a rabbi, a state NAACP official, a small town mayor and other community leaders wrote op-eds and letters to Congress with remarkably similar language on a remarkably obscure topic.

Each railed against a long-standing proposal that would give taxpayers the option to use pre-filled tax returns. They warned that the program would be a conflict of interest for the IRS and would especially hurt low-income people, who wouldn't have the resources to fight inaccurate returns.

 

[lpetrich]

Filing Taxes Could Be Free and Simple. But H&R Block and Intuit Are Still Lobbying Against It. — ProPublica - March 20, 2017, 1:22 p.m. EDT - "The makers of TurboTax and other online systems spent millions lobbying last year, much of it directed toward a bill that would permanently bar the government from offering taxpayers prefilled filings."

Intuit spent more than $2 million lobbying last year, much of it spent on legislation that would permanently bar the government from offering taxpayers prefilled returns. H&R Block spent $3 million, also directing some of their efforts towards the bill. Among the 60 co-sponsors of the bipartisan bill: then congressman and now Health and Human Services Secretary Tom Price.

The bill, called the Free File Act of 2016, looks on the surface to be consumer-friendly. It makes permanent a public-private partnership in which 13 private tax preparation companies — called the “Free File Alliance” — have offered free online tax filings to lower- and middle-income families. The Free File Alliance include both Intuit and H&R Block.

But the legislation would also permanently bar the IRS from offering its own free alternative.

Inside TurboTax’s 20-Year Fight to Stop Americans From Filing Their Taxes for Free — ProPublica - Oct. 17, 2019, 5 a.m. EDT - "Using lobbying, the revolving door and “dark pattern” customer tricks, Intuit fended off the government’s attempts to make tax filing free and easy, and created its multi-billion-dollar franchise."

Intuit’s QuickBooks accounting product remains a steady moneymaker, but in the past two decades TurboTax, its tax preparation product, has driven the company’s steadily growing profits and made it a Wall Street phenom. When Smith took over in 2008, TurboTax was a market leader, but only a small portion of Americans filed their taxes online. By 2019, nearly 40% of U.S. taxpayers filed online and some 40 million of them did so with TurboTax, far more than with any other product.

But the success of TurboTax rests on a shaky foundation, one that could collapse overnight if the U.S. government did what most wealthy countries did long ago and made tax filing simple and free for most citizens.

The company has lobbied over 20 years against IRS direct file.

Internal presentations lay out company tactics for fighting “encroachment,” Intuit’s catchall term for any government initiative to make filing taxes easier — such as creating a free government filing system or pre-filling people’s returns with payroll or other data the IRS already has. “For a decade proposals have sought to create IRS tax software or a ReturnFree Tax System; All were stopped,” reads a confidential 2007 PowerPoint presentation from an Intuit board of directors meeting. The company’s 2014-15 plan included manufacturing “3rd-party grass roots” support. “Buy ads for op-eds/editorials/stories in African American and Latino media,” one internal PowerPoint slide states.

Then mentioning the Free File program, a deal between the Federal Government and tax-preparation companies. The companies would offer free online filing of taxes, and in return, the IRS would not create a similar system.

Since Free File’s launch, Intuit has done everything it could to limit the program’s reach while making sure the government stuck to its end of the deal. As ProPublica has reported, Intuit added code to the Free File landing page of TurboTax that hid it from search engines like Google, making it harder for would-be users to find.

Twelve years ago, Intuit launched its own “free” product: the similarly named “Free Edition” of TurboTax. But unlike the government program, this one comes with traps that can push customers lured with the promise of “free” into paying, some more than $200. Free Edition was a smash hit for Intuit and its pitch for “free” prep remains core to the company’s growth. Recently, it launched a “free, free free free” ad campaign for the Free Edition, including a crossword puzzle in The New York Times in which the answer to every clue was “f-r-e-e.”

Intuit knows it’s deceiving its customers, internal company documents obtained by ProPublica show. “The website lists Free, Free, Free and the customers are assuming their return will be free,” said a company PowerPoint presentation that reported the results of an analysis of customer calls this year. “Customers are getting upset.”

Intuit also continues to use “dark patterns” — design tricks to get users of its website to do things they don’t necessarily mean to do — to ensure that as many customers as possible pay, former employees say. A marketing concept frequently invoked at Intuit, which goes by the acronym “FUD,” seeks to tap into Americans’ fear, uncertainty and doubt about the tax filing process.

So it's technically true but very misleading.  Fear, uncertainty, and doubt (FUD)

FUD was first used with its common current technology-related meaning by Gene Amdahl in 1975, after he left IBM to found his own company, Amdahl Corp.

FUD is the fear, uncertainty and doubt that IBM sales people instill in the minds of potential customers who might be considering Amdahl products.

Back to ProPublica.

An Intuit spokesman declined to answer ProPublica’s detailed questions about its efforts to fend off a government filing system, but he provided a statement.

“We empower our customers to take control of their financial lives, which includes being in charge of their own tax preparation,” he said, adding that a “government-run pre-filled tax preparation system that makes the tax collector (who is also the investigator, auditor and enforcer) the tax preparer is fraught with conflicts of interest.”

What phony weepiness.

 

[lpetrich]

Intuit and H&R Block lobby against IRS free tax filing | Fortune - April 17, 2023 at 3:58 AM PDT

TurboTax owner Intuit ramps up lobbying as debate over government-run free tax filing heats up • OpenSecrets - May 5, 2023 11:16 am

TurboTax owner Intuit spent more on federal lobbying in the first three months of 2023 than any prior first quarter . The surge in spending comes on the heels of heated debate over whether the government should provide its own free tax filing service that was reignited by an $80 billion funding increase to overhaul the IRS as part of the Inflation Reduction Act passed in 2022.

The tax prep company — which also owns QuickBooks, Mint, Credit Karma and Mailchimp — spent a record sum of $980,000 on lobbying during the first quarter of 2023, more than any prior first quarter.

Senator Warren, Representative Porter Seek Answers from Tax Prep Companies on Millions Spent Lobbying Against Popular, Simple, Free File Option | U.S. Senator Elizabeth Warren of Massachusetts - August 25, 2023 - “The IRS’ creation of a free, government-run direct filing tool would benefit taxpayers and rein in the predatory and exploitative behavior of tax prep companies.”

“Free File’s failure is not an accident,” wrote the lawmakers. “Tax prep companies have used deceptive practices and outright lies to push consumers from Free File into paid programs, including deliberately suppressing Free File websites from search results and channeling taxpayers into in-house ‘freemium’ programs that charge for services that would be free under Free File.”

Twenty years ago, tax preparation companies successfully lobbied to prevent the IRS from creating and implementing a free and automatic tax preparation system, intended to provide 70% of taxpayers with a free tax preparation option. However, by 2018, only approximately 3% of taxpayers were participating each year, due in large part to tax prep companies’ deceptive practices like changing the name of the free program and deliberately hiding it from Google search results to funnel people into their programs.

IRS Direct Tax Filing: the end of Intuit's lobbying - Oct 20, 2023 - "Thirty-eight years since the launch of e-filing, the IRS will pilot its own tax filing system ending two decades of Intuit's regulatory capture of the tax software market"

 

[lpetrich]

Intuit and H&R Block blast IRS free tax filing as a costly 'scheme' - 11-09-2023 - "How H&R Block and Intuit are banking on your mistrust of the IRS to keep you as a customer" - "In response to a government-run pilot for free filing, the tax-prep industry is embracing the populist trope that the government simply can’t be trusted."

“Americans have made it clear: They prefer existing tax preparation options over a government-run system,” Tom Gannon, chief government relations officer at H&R Block, said in a statement provided to Fast Company. “Today, there are more than 30 free tax filing choices available from non-profit organizations and tax preparation companies such as H&R Block, and the IRS should focus additional funding on improving its existing services for taxpayers.”

Intuit:

Direct File is not free tax preparation, but rather a thinly veiled scheme where billions of dollars of taxpayer money will be unnecessarily used to pay for something already completely free of charge today—free to the taxpayer and actually free for the government,” the company said in a statement. “In addition to now paying for ‘free’ tax preparation, Direct File is asking Americans to file their taxes directly with the IRS after the organization publicly acknowledged systemic inequities that see low-income filers and Black taxpayers targeted for audit at a higher rate than non-Black taxpayers. The Direct File scheme is a solution in search of a problem, and that half-baked solution now has the potential to become a financial nightmare for tens of millions of taxpayers.”

CalFile | FTB.ca.gov - an online filing system for the state of California

For instance, a brief from Americans for Tax Reform, a conservative advocacy group formed by Grover Norquist, points out that the program is being kickstarted without Congressional approval, despite assurances from IRS Commissioner Daniel Werfel that that wouldn’t be the case.

...
It hasn’t stopped conservative groups from piling on: CPAC, the Club For Growth, FreedomWorks, and others have all expressed concern about the increasing size of the IRS, and potential government overreach.

But at the heart of the opposition to the Direct File program is a fairly simple notion: Taxpayers shouldn’t trust the government to give them a fair refund.

 

[lpetrich]

TurboTax maker Intuit spent millions in record lobbying blitz amid threats to tax prep industry • OpenSecrets - February 6, 2024 10:04 am

“Direct File is not free tax preparation, but rather a thinly veiled scheme where billions of taxpayer dollars will be unnecessarily used to pay for something already completely free of charge today — free to the taxpayer and actually free for the government,” Intuit’s spokesperson Tania Mercado told OpenSecrets, emphasizing that the program “could end up wasting billions of taxpayer dollars.”

The tax prep industry spent more than $93 million on federal lobbying since the 2003 launch of the Free File Program — a public-private partnership between the IRS and a coalition of tax prep companies known as the IRS Free File Alliance that gives eligible taxpayers who earn below a certain income free access to commercial tax prep software.

Intuit spent $47.2 million of that lobbying money.

The TurboTax parent company set a new company record for federal lobbying in 2023, spending nearly $3.8 million — more than it spent in any prior year. In the last three months alone, the tax prep company spent $960,000 on federal lobbying, as first reported by More Perfect Union.

...
H&R Block spent over $3 million on federal lobbying in 2023 with $790,000 in the fourth quarter, a slight increase from 2022 but lower than some other prior years.

...
The American Coalition for Taxpayer Rights, a tax prep, software and financial services trade association, also ramped up lobbying efforts in 2023 with $370,000 in spending on federal lobbying.

...
Most recently, Warren and Porter joined with Sens. Bernie Sanders (I-Vt.) and, Richard Blumenthal (D-Conn.) in requesting from Intuit a full accounting of its expenses related to federal research tax breaks.

...
SEC filings indicate that Intuit received $106 million in research and development tax credits in 2023, up from $94 million in 2022. The lawmakers questioned whether the government should be giving a tax break to subsidize the development of a potential competitor to the Direct File program when the government has invested so much into the development of the government-run software tool. They emphasized that Intuit’s annual research and development tax break could have been enough to fund a year of Direct File based on IRS estimates.

 

[lpetrich]

House GOP propose defunding IRS Direct File, further budget cuts to enforcement

But the House Appropriations Committee released a fiscal 2025 spending bill this week that would cut IRS funding by nearly 18% and zero out funding for Direct File.

The FY 2025 fiscal services and general government appropriations bill would give the IRS a $10.11 billion budget — a $2.2 billion cut from current spending levels. The cuts would be felt mostly by IRS enforcement, which would see a $2 billion cut in funding.

The spending bill also “prohibits funds to be used for the IRS to create a government-run tax preparation software that Congress has not authorized.”

The bill cleared the financial services and general government subcommittee on Wednesday, but Congress is still in the early stages of crafting a spending deal for next year.

 

[BH]

I remember Telefile baçk when Clinton was president.

 

[Loren Pechtel]

If the IRS is going to do it that would hopefully get rid of the compatibility issues. We will still have to go with a program, though.

 

[ZiprHead]

Not sure I see a political angle to this so moving to miscellaneous discussion.

 

[lpetrich]

IRS Direct File | Internal Revenue Service - only 1/4 of the states accepted that invitation, and with the 1/4 of states currently in the program, that makes 1/2 of the states. The earlier states are liste din Here's who qualifies for free tax filing through the IRS this season (the earlier list omitted Washington State)

To the 12 states of this year (*) were added 12 more states: AK, *AZ, *CA, CT, *FL, ID, KS, *MA, MD, ME, NC, *NH, NJ, NM, *NV, *NY, OR, PA, *SD, *TN,* TX, *WA, WI, *WY.

Direct File doesn't prepare state returns. If you need to file a state return, Direct File will guide you to a state-supported preparation and filing tool after you’ve finished your federal return.

For the most part, this upcoming version has the same limitations as for this year, like no itemized deductions, but it seems like it can now handle any interest income with no upper limit, and also any retirement income. Still no gig-economy, rental, or business income.