Nevada among states joining IRS free ‘Direct File’ pilot program
For decades, tax preparation companies lobbied against a simpler and free tax filing system directly through the IRS that would bypass the companies. (Photo: Chip Somodevilla/Getty Images)
Nevada joined 12 other states in the IRS’ new direct and free filing pilot program for the 2024 tax season, the IRS announced last week. The pilot program will use the IRS software for federal tax filing, the first time this option has been available.
For states like Nevada that don’t have state income taxes, this means that they can file their returns for free if they meet the requirements.
Eligibility will be limited by the types of income, tax credits, and deductions that the platform can initially support. Details on those limitations have yet to be made available.
“This is a critical step forward for this innovative effort that will test the feasibility of providing taxpayers a new option to file their returns for free directly with the IRS,” said Danny Werfel, the IRS Commissioner, in a press release. “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.”
While all states were invited to participate in the pilot program, only 13 joined, with nine of the states — Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — not having a state income tax. The four states participating in the pilot that do have a state income tax, Arizona, California, Massachusetts, and New York, are working with the IRS to integrate their state taxes into this program.
For decades Intuit, which oversees TurboTax, and H&R Block lobbied against a simpler and free tax filing system directly through the IRS that would bypass private companies, according to a 2022 report by the Government Accountability Office (GAO). The GAO report found that companies have hampered the current program by blocking search results and adding additional fees for unrelated services.
About 70% of people in the U.S. can file for free under the current IRS’s program called Free File, but only about 4 % of eligible taxpayers do, according to the GAO report.
Free File was a public-private partnership between the IRS and tax filing software industry giants like Intuit dating back 20 years. The IRS agreed it would use software developed by these companies to help taxpayers file federal returns either through the IRS or through these software programs’ websites and refrain from developing their own software under a Memorandum of Agreement (MOA), which was spearheaded by Intuit lobbyists.
Free File provides two ways for taxpayers to file their federal income tax online whose Adjusted Gross Income (income minus dedications) is $73,000 or less. The first is through guided tax preparation services via an IRS partner site or through Free File fillable forms that the individuals prepare themselves.
The MOA allowed these tax services to be provided for free for certain individuals, but companies contracting with the IRS could still charge customers for other products.
A ProPublica investigation found that companies like Intuit also used code to make the Free File landing page on TurboTax hidden on search engines, charged for other products that were not free or for commonplace tax forms, and only put the paywall pop-up for these costs when the taxpayer was already deep into the filing process.
A 2019 addendum to MOA lifted the restrictions for the government to create its own e-filing software and blocked tax prep companies from blocking the Free File search results. In 2020, H&R Block pulled out of the agreement. Intuit followed in 2021.
The Inflation Reduction Act (IRA) included $80 billion for the IRS to address severe understaffing, modernize outdated technology, and enhance enforcement, the latter with a focus on high-income filers, partnerships, and corporations that have abused the nation’s complicated tax code to avoid paying.
The IRS will use $15 million of IRA funding to implement and monitor the new pilot program.
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