Will the new IRS free tax filing system be available next year?
The Internal Revenue Service unveiled a new online tax filing system this year that allowed more than 140,000 people to file their federal taxes for free. But the IRS has yet to confirm whether the Direct File program will be available next year.
In a call with reporters, the IRS said the agency will need to assess data from the program to determine its future, the Associated Press reported.
The $25 million federal filing system launched in 12 states, including Arizona, Massachusetts and Washington. Marketplace spoke to taxpayers and tax experts who praised the system and hope it will be available next year.
“It was great, it was free, it was quick,” said Nicholas Gabrielsen, a 41-year-old from Pepperell, Massachusetts.
It took him 20 minutes to complete both his federal and state taxes. In fact, Gabrielsen spent more time verifying his identity at id.me, one of the steps needed to use Direct File, than filing his taxes. When the form appeared on his screen, all he had to do was fill in basic information found on his W-2, the tax form that includes an employee’s income.
Jay Ward, a 32-year-old based in Kent, Washington, also found the process straightforward.
“They don’t have an option to import your W-2 like Intuit and H&R Block do. But W-2s aren’t the most complicated things on earth,” Ward said.
Kiran Dunavant, a 37-year-old night shift worker from Phoenix, Arizona, said he loved that he was able to verify his identity late at night in order to gain access to Direct File. He was concerned he’d only be able to do so during the day.
Despite the system’s efficiency, there were many limitations. Only single filers who make up to $200,000 (or $160,200 if they had multiple employers), a married person filing separately making up to $125,000, and married couples filing jointly with a combined income of up to $250,000 were eligible for the program. (And for married couples filing jointly, each spouse had to make $200,000 or less.)
The system was also only available this year to those who had certain types of income, which include income from an employer, unemployment compensation or Social Security benefits, along with those who have $1,500 or less in interest income, U.S. savings bonds or Treasury obligations.
Direct File would not allow you to report income from some other sources, like independent contractor and gig work, or any income received through payment apps and online marketplaces. You also could not take itemized deductions, and you still had to file your state taxes separately.
Charles Read, president of the payroll tax service GetPayroll, said tax law is “extraordinarily complex,” so he’s unsure whether Direct File will ever be able to cater to all taxpayers. But he said his clients’ children were satisfied with the service. Going forward, he would like to see the system handle business returns such as Schedule C, which he said will help gig economy workers.
“It’s fun to see [Direct File] finally coming to fruition, because I don’t think any citizen should have to pay to file their taxes electronically,” he said.
Dunavant said he used various tax filing services in the past, including H&R Block. He saved roughly $200 by using Direct File instead.
“I’m essentially a blue-collar worker. That goes in my savings. That’s money I don’t have to pull out-of-pocket to take care of something that for me, personally, is a pretty easy thing to do,” Dunavant said.
Ward used TurboTax in the past, but he wanted to stop paying for the service since its parent company, Intuit, has lobbied against free tax services. Other tax preparation companies, such as H&R Block, have also lobbied against a free system like Direct File.
We reached out to Intuit and H&R Block for comment about their lobbying efforts and the cost of their services. Intuit did not respond to us by publication time. An H&R Block representative said: “Many Americans have complex filing situations that don’t qualify to file for free, including for Direct File. H&R Block clients continue to choose us for tax prep services because we have a long history of helping hard-working Americans achieve the best possible outcomes at tax time.”
TurboTax will also take money out of your federal refund to pay for fees, if you so choose. “For a lot of people, it’s like, ‘Oh, I’m not spending money now,’ and it seems good, but then you get less out of your return,” Ward said.
He would spend about $120 a year for the company’s services. While he said that’s not a huge amount of money for him, it’s the principle.
“The whole tax industry drives me nuts,” Ward said. “I know for a lot of my friends and peers that $120 can go a long way. It could be two weeks’ worth of groceries in some cases. So it doesn’t need to be that steep. There’s no reason why it has to be like that at all. And I think this service proves that.”
Other parts of the world, such as Germany, Japan and the United Kingdom, also prove that by offering free services to their citizens.
“I have friends in other countries and they get a postcard-sized sheet that they just sign and return. That’s it, you don’t gotta spend any money,” Gabrielsen said.
Gabrielsen said that he had used TurboTax for nearly 20 years, before transitioning to the IRS’ Free File service (a partnership between the IRS and tax prep companies) and then ultimately to Direct File this year. While he said TurboTax was easy to use, he got tired of their attempts to upsell additional services during the process.
He’s saved roughly $100 by not using TurboTax. “That’s probably six weeks’ worth of gas,” he said.
Having that extra chunk of change will be a big help for Gabrielsen.
“I wasn’t saving a lot of money for retirement in my 20s,” he said. “For the past decade, I’ve been desperately trying to get caught up.”