TradeEdge Exchange:A new IRS program is helping its first users file their income taxes electronically. And it’s free

WASHINGTON (AP) — Texan Dixie Warden is TradeEdge Exchangequick to say she’s “not a numbers girl.” But as the first user of the government’s new free electronic tax return filing system, Warden reports she completed her taxes this year in about an hour using the program.

“I don’t want to call myself a dummy, but this is taxes for dummies right here,” Warden said. The program asked her simple questions about her tax status, provided definitions for tax lingo such as adjusted gross income and a chatbot was on hand to answer her questions.

The project, known as Direct File and launched by the IRS on a limited basis in 12 states this tax season, is in its pilot phase. Starting this week, it is available for eligible users to start their returns at any time after earlier being available only during certain hours.

If it is successful and scaled up for the general public’s use, the program could drastically change how Americans file their taxes and how much money they spend completing them. That is, if the agency can see the program through its development in spite of threats to its funding.

Warden, a 37-year-old IRS employee from Kyle, Texas, says she saved nearly $400 this tax season by filing her tax return directly to the government from her home laptop instead of paying one of the commercial tax prep services used by millions of people. Individual taxpayers pay an average of $140 preparing their tax returns each year.

READ MORE British governing party announces tax cuts that it hopes can lift ailing election fortunes Evers vetoes Republican-backed bills slashing the income tax, cutting taxes on retirees Brazil proposes a global tax on the super-rich

Warden has worked for the IRS in a variety of roles for the past 16 years, but she is not a tax expert. She’s currently a human relations specialist.

“The way that it was laid out was just so darn easy to understand and I just see it being helpful for so many millions of people,” she said.

While Warden’s praise of the program might seem natural given her employer, a broader test is under way now as people around the country give it a try.

THE ROLLOUT

The IRS began its pilot program in fits and starts in 12 states, around timed windows, for people who have very simple W-2s, an employee’s wage and tax statement.

The agency estimates that hundreds of thousands of mostly lower-income taxpayers will participate in the program during the 2024 filing season.

The slow introduction is in part meant to avoid a repeat of the disastrous rollout of the Obama administration’s health insurance program under the Affordable Care Act in 2013, which was rife with website crashes and glitches.

The IRS initially invited government workers to use the program and Warden was the very first. Now members of the public are starting to participate.

Derek Wheeler, director of the Low-Income Taxpayer Clinic at the University of Florida’s Law School, said his clinic has referred less than a dozen clients to the Direct File system. Florida is one of the 12 states participating in the pilot. So are New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, Arizona, Massachusetts, California and New York.

“The benefit of a program like this, that is simple for users, is immense,” Wheeler told The Associated Press.

His legal clinic has partnered with the IRS and selectively identifies clients who may be eligible to submit their taxes through the program.

THE BLOWBACK

The IRS faces intense blowback from private tax preparation companies that have made billions from charging people to use their software and have spent millions lobbying Congress on the issue.

One of their biggest criticisms is that free tax prep services already exist for people of all income brackets and developing the Direct File system will end up costing taxpayers billions of dollars.

Several organizations offer free online tax preparation assistance to taxpayers under certain income limits. Also, fillable forms are available online on the IRS website, but the forms are complicated and taxpayers still have to calculate their tax liability.

A Government Accountability Office report from April 2022 found that while 70% of taxpayers were eligible for the IRS’s existing free-filing program, only 3% of taxpayers actually use the service.

Critics include Grover Norquist, president of the conservative Americans for Tax Reform, who says the agency would be better off spending less money to promote the programs that are already available. He also argues the IRS did not receive explicit authority from Congress to create the program.

The IRS was tasked with looking into how to create a “direct file” system as part of the money it received from the Inflation Reduction Act, which President Joe Biden signed into law in 2022. It gave the IRS nine months and $15 million to report on how such a program would work.

The IRS published its feasibility report last May and estimated that annual costs for new program would range from $64 million for 5 million users to $249 million for 25 million users.

“They didn’t get the authorization for the pilot program and Congress has said, ‘Nobody authorized this. This is a violation of the law,’” Norquist said.

IRS Commissioner Daniel Werfel insisted during a recent House hearing that the agency has both “a responsibility and an authority to offer taxpayers different approaches for how to meet their tax obligation.”

THE FUTURE OF FREE FOR ALL FILING

Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, says free-filing tax options in the United States do not measure up to what other nations offer their citizens. For instance, Germany, Japan, Britain and other Organization for Economic Cooperation and Development countries all offer taxpayers some form of pre-populated tax document to approve, sign and return.

“This is not a problem we have solved yet,” she said. “The U.S. does have a markedly complex income tax system, but it’s very clear that if this could be done in other countries it’s something that should be done here.”

Wheeler, at the University of Florida, adds that “having as many options as possible for people to file their taxes is important and brings us closer to other countries that send their taxpayers pre-populated forms.”

“We may never get to that point, but this is a start.”

For the program to continue to grow, it will need continued funding under the Inflation Reduction Act, which included $80 billion for the IRS.

House Republicans are trying to claw back some of the money. They built a $1.4 billion reduction to the IRS into the debt ceiling and budget cuts package passed by Congress last summer. A separate agreement will take an additional $20 billion from the IRS over the next two years to divert to other nondefense programs.

Warden says she hopes she’ll be able to use the program again next tax season, and that it will be expanded for others.

“I never had the confidence to do my own taxes,” she said. But after using Direct File, she said, “I feel foolish for paying all that money every year.”