The US Internal Revenue Service (IRS), which is responsible for handling federal taxes, has advanced its plan to bring free tax filing to US citizens in a move that could threaten an entire industry built around tax filing.
The IRS announced that its pilot scheme would open for the 2024 tax year, and eligible taxpayers from 13 US states would be able to take part.
The scheme, which forms part of the 2022 Inflation Reduction Act, is designed to improve taxpayer service, enforcement, and technology, and could eliminate the need for taxpayers to use paid services like TurboTax.
Free filing service for US taxpayers
Residents in Arizona, California, Massachusetts, and New York will be eligible to take part in the pilot. The IRS also added that taxpayers without an income tax in Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming are also eligible.
IRS Commissioner Danny Werfel said: "In this limited pilot for 2024, we'll be working closely with the states that have agreed to participate in an important test run of the state integration. This will help us gather important information about the future direction of the Direct File program.”
The pilot scheme will consider income, credits, and deductions to determine precisely which residents may be eligible in this round of testing.
The IRS hasn’t explicitly committed to bringing free tax filing to all, instead stating that it would “evaluate the costs, benefits and operational challenges associated with providing a voluntary Direct File option to taxpayers.”
The IRS has, however, promised to publicly share the results of its analysis in due course, which could spell the end for companies that offer such services for a fee.
In a statement, Intuit, the maker of rival platform TurboTax, hit back at the plans, telling TechRadar Pro, "The Direct File scheme is wholly redundant and will be of zero value to the vast majority of taxpayers, all of whom can already file their taxes absolutely free of charge today - free for the taxpayer and actually free for the government."
"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. 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 Americans being asked to file their taxes directly with the IRS after the organization publicly acknowledged systemic inequities in their tax administration that see low-income filers and Black taxpayers targeted for audit at a higher rate than non-Black taxpayers.
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