Current:Home > NewsThe IRS is building its own online tax filing system. Tax-prep companies aren't happy -ProsperityStream Academy
The IRS is building its own online tax filing system. Tax-prep companies aren't happy
View
Date:2025-04-12 18:41:56
The IRS is developing a system that would let taxpayers send electronic returns directly to the government for free, sidestepping commercial options such as TurboTax.
The agency plans a pilot test of the program next year.
Many other countries already offer taxpayers a government-run filing system. But the IRS plan is likely to face stiff opposition from the $14 billion tax-preparation industry.
"A direct-to-IRS e-file system is wholly redundant and is nothing more than a solution in search of a problem," said Rick Heineman, a spokesman for Intuit, the company behind TurboTax. "That solution will unnecessarily cost taxpayers billions of dollars and especially harm the most vulnerable Americans."
Americans already spend significant time and money preparing their taxes. The average individual filer pays $140 per year, according to the IRS.
While an alliance of industry players offers a free-filing option through the IRS website, only about 2% of taxpayers use it.
"That's because the tax prep companies sabotaged the program, so they could keep raking in money," Sen. Elizabeth Warren, D-Mass., said last month.
Last year, TurboTax paid $141 million to settle a complaint that it advertised free tax preparation, then steered customers into costly upgrades. The company did not admit to any wrongdoing.
Taxpayers will still have choices on how to file
IRS commissioner Danny Werfel stressed that filing returns directly with the government will be strictly optional.
"Taxpayers will always have choices for how they file their taxes," Werfel told reporters during a conference call Tuesday. "They can use tax software. They can use a trusted tax professional. They can use a paper tax return. We'd rather they file electronically, sure. But they have that choice."
Many Democrats have long favored a direct filing option. Legislation passed last year gave the IRS $15 million to study the idea.
"Democrats are committed to the proposition that it shouldn't cost hundreds of dollars and many more hours of time simply to follow the law," Senate Finance Committee chairman Ron Wyden, D-Ore., said during a hearing last month. "When it comes to filing taxes online, the status quo is unacceptable."
Through surveys, the IRS found significant interest in a government-run filing system, but also challenges.
One survey found 72% of taxpayers would be "very interested" or "somewhat interested" in a system that allowed them to file returns directly with the government at no cost. The option was most popular with younger people, those with limited English skills and people who do their own taxes.
"If the government is requiring me to file, they should offer a free service," one survey respondent said.
Concerns remain about online filing
Other participants were concerned, however, that the tax collector might not provide them with the largest refund or the smallest tax bill — a potential conflict that's been highlighted by commercial tax preparers.
The IRS estimates that setting up and operating a direct file system would cost the government between $64 million and $249 million annually, depending on the number of users and the complexity of returns it could handle.
One challenge is how to integrate state tax returns, which would make a IRS-run system more attractive. The system could also be a stepping stone to having the IRS fill in parts of a tax return itself, using information from employers and other sources.
The next step in the process is to let some real taxpayers try using the system next year.
"The best way to be successful is to begin with a limited scope pilot that allows the IRS to test functionality for some taxpayers, evaluate success, and use lessons learned to inform the growth of the tool," Deputy Treasury Secretary Wally Adeyemo wrote, in a letter authorizing the test.
The scale of the experiment and the kinds of taxpayers who will be eligible is yet to be determined.
veryGood! (43)
Related
- IRS recovers $4.7 billion in back taxes and braces for cuts with Trump and GOP in power
- Grapefruit-sized hail? Climate change could bring giant ice stones
- Lawyers for Alabama inmate seek to block his fall execution by nitrogen gas
- Mall guard tells jurors he would not have joined confrontation that led to man’s death
- San Francisco names street for Associated Press photographer who captured the iconic Iwo Jima photo
- Anthony Edwards trashes old-school NBA: Nobody had skill except Michael Jordan
- Michigan doctor charged with taking photos and videos of naked children and adults
- Company that sent AI calls mimicking Joe Biden to New Hampshire voters agrees to pay $1 million fine
- Whoopi Goldberg is delightfully vile as Miss Hannigan in ‘Annie’ stage return
- 'Hard Knocks': Caleb Williams' QB1 evolution, Bears nearly trade for Matt Judon
Ranking
- 'We're reborn!' Gazans express joy at returning home to north
- 'Hard Knocks': Caleb Williams' QB1 evolution, Bears nearly trade for Matt Judon
- Plane crashes into west Texas mobile home park, killing 2 and setting homes ablaze
- Jesse Winker’s pinch-hit homer in 9th gives Mets 4-3 win over Orioles
- Stamford Road collision sends motorcyclist flying; driver arrested
- Steve Kerr's DNC speech shows why he's one of the great activists of our time
- Canada’s two major freight railroads may stop Thursday if contract dispute isn’t resolved
- 'Hard Knocks': Caleb Williams' QB1 evolution, Bears nearly trade for Matt Judon
Recommendation
Warm inflation data keep S&P 500, Dow, Nasdaq under wraps before Fed meeting next week
Democrats get a third-party hopeful knocked off Pennsylvania ballot, as Cornel West tries to get on
It Ends With Us' Brandon Sklenar Slams Critics Vilifying the Women Behind the Film
At least 55 arrested after clashes with police outside Israeli Consulate in Chicago during DNC
At site of suspected mass killings, Syrians recall horrors, hope for answers
KARD on taking a refined approach to new album: 'We chose to show our maturity'
Fans pile into final Wembley Stadium show hoping Taylor Swift will announce 'Reputation'
Warriors legend, Basketball Hall of Famer, Al Attles dies at 87