IRS to Invite Select Taxpayers to Participate in Limited Rollout of Free E-File Tax Return System
The IRS has announced plans to invite select taxpayers from 13 states to participate in a pilot electronic free file tax return system. The program is set to begin in January, with the agency estimating that hundreds of thousands of taxpayers will take part in the limited rollout for the 2024 filing season.
This move by the IRS has received pushback from private tax preparation companies, as the introduction of a government-run option could potentially disrupt the industry and change the way taxpayers interact with the IRS. The agency aims to ensure a smooth rollout, learning from past experiences such as the healthcare.gov website rollout, which encountered numerous challenges.
The IRS plans to roll out the program in increments, gradually increasing its scope and gathering essential data to determine its effectiveness. The agency will collaborate with nonprofits, congressional offices, states, and other entities to identify eligible taxpayers based on their income, tax credits, and deductions.
IRS Commissioner Daniel Werfel emphasizes that the pilot program is intended to provide taxpayers with another choice for filing taxes and is part of the agency’s efforts to transform its services. The idea of a “direct file” system was included in the funding received by the IRS from the Inflation Reduction Act signed into law by President Joe Biden. Following its feasibility report published in May, the program initially covers individual federal tax returns, with plans to integrate state taxes in collaboration with Arizona, California, Massachusetts, and New York for the 2024 filing season.
Code for America is working with these states to create their own state filing programs, contributing to the overall success of the direct file tool. Taxpayers in nine other states without income tax may also be eligible to participate in the pilot.
Further details regarding the selection process for participants will be released in January. The IRS aims to find the right approach and size for the initial set of taxpayers invited to the program.
Perspective:
Introducing a government-run option for free e-file tax returns has the potential to disrupt the tax preparation industry, which has made billions by charging people to use their software. This move by the IRS could significantly change how taxpayers interact with the agency. The pilot program aims to ensure an easy-to-understand process that gathers valuable data for assessing its usefulness. Collaborations with nonprofits, congressional offices, states, and others will help identify eligible taxpayers. By gradually expanding the program and integrating state taxes, the IRS is working towards transforming its services and offering taxpayers more options when filing their taxes.
