TL/DR –
The IRS is launching a pilot program for a free, online tax filing system for some Americans, financed by part of the $80 billion from the Inflation Reduction Act. The Direct File system is expected to simplify the tax filing process and incentivize digital returns, but faces opposition from tax preparation companies and Republicans in Congress. The pilot program will initially be available in 12 states for people with income from an employer on a W-2 form, unemployment compensation, social security benefits, and interest of $1,500 or less.
IRS Introduces Free Online Tax Filing System
The IRS is set to roll out its free online tax filing system, Direct File, as part of a pilot program funded by the Democrats’ $80 billion Inflation Reduction Act . The introduction of government-run tax preparation could revolutionize tax season for Americans. Proponents believe the system will streamline digital tax returns and make the process more user-friendly.
However, the Direct File system is facing opposition from tax giants like H&R Block and TurboTax and Republicans in Congress who question the need for increased IRS funding. These critics have targeted the funds allocated to the IRS through the Inflation Reduction Act.
How Direct File Works and Who Can Use It
Eligible taxpayers in 12 states can utilize Direct File for the upcoming tax season. To qualify, individuals must have income from a W-2 form, unemployment compensation, Social Security benefits, and interest of $1,500 or less. The system excludes taxpayers with gig work or business income and those claiming certain tax credits.
Available online, Direct File provides English and Spanish guidance to users and employs a live-chat function with IRS employees to assist with any issues. Upon completion, users receive a link to download their return. However, the pilot does not include state return filing.
Direct File’s Uncertain Future
Despite the potential advantages of a government-operated tax tool, Direct File faces an uphill battle. According to a Government Accountability Office report, despite the availability of free federal returns for 70% of Americans, only 3% utilize the service. A recent report also suggested that the absence of state tax filing could decrease support for the free filing program, according to a government survey.
The tax preparation industry has fiercely opposed Direct File, questioning its necessity given the low usage of Free File. Additionally, future funding for the program remains uncertain as Republicans in Congress aim to reduce the IRS’s funding from the Inflation Reduction Act.
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