Dixie Warden, a Texan, clarifies right up that she’s “not a numbers girl.” Nonetheless, Warden claims that she finished her taxes this year in just one hour by utilizing the government’s new free electronic tax return filing system, making her the first user of the technology.
Warden said, “This is taxes for dummies right here. I don’t want to call myself a dummy.” The application posed straightforward questions about her tax situation, defined terms used in the tax world, including adjusted gross income, and offered a chatbot to assist with her inquiries.
This tax season, the IRS introduced the Direct File initiative in 12 states on a limited basis. The concept is now in its test phase. It was previously only accessible during certain hours, but as of this week, qualified consumers may begin their returns whenever they want.
The initiative has the potential to significantly alter how Americans file their taxes and how much money they spend doing so if it proves effective and is expanded for public use. That is, if the organization can continue to improve the program despite risks to its financing.
Rather than using one of the millions of individuals who utilize commercial tax prep services, Warden, a 37-year-old IRS employee from Kyle, Texas, filed her tax return directly to the government from her home laptop, saving her about $400 this tax season. The average cost for individual taxpayers to prepare their tax returns is $140 annually.
Although Warden has spent the last 16 years working with the IRS in a variety of capacities, she is not an expert in taxes. She works as a human relations professional at the moment.
She said, “I just see it being helpful for so many millions of people because of how darn easy it was laid out.”
Although Warden’s endorsement of the program makes sense given her work, a wider test is now underway as others across the country give it a try.
The rollout
The IRS started a test program for those with very basic W-2s, an employee’s pay and tax statement, in fits and starts in 12 states at scheduled periods.
The government predicts that during the 2024 filing season, hundreds of thousands of taxpayers, mostly those with lower incomes, will take part in the program.
A portion of the reason for the delayed launch is to prevent another catastrophe like the 2013 launch of the Obama administration’s health insurance program under the Affordable Care Act, which was beset by frequent website malfunctions and breakdowns.
Warden was the first federal employee to utilize the software when it was originally made available by the IRS. The general population is now beginning to take part.
The University of Florida Law School’s Derek Wheeler, head of the Low-Income Taxpayer Clinic, said that his clinic had only recommended a handful of clients to the Direct File method. Twelve states are involved in the trial program, including Florida. Likewise, Nevada, Arizona, Massachusetts, California, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming are.
Wheeler told The Associated Press, “The benefit of a program like this, which is simple for users, is immense.”
His legal clinic selects people who could be qualified to file their taxes via the program in collaboration with the IRS.
The blowback
Private tax preparation firms, which have gained billions by charging consumers to use their software and have spent millions lobbying Congress on the subject, are putting a lot of pressure on the IRS.
One of their main complaints is that there are already free tax preparation services available to individuals in every income category and that the Direct File system would ultimately cost taxpayers billions of dollars to construct.
Taxpayers under a specific income threshold may get free online tax preparation help from a number of organizations. Additionally, the IRS website offers fillable forms; nevertheless, due to the forms’ complexity, taxpayers must still determine their tax burden.
According to a Government Accountability Office analysis dated April 20, 2022, just 3% of taxpayers actually utilize the IRS’s free-filing program, despite the fact that 70% of taxpayers are qualified for it.
Grover Norquist, the head of the Republican Americans for Tax Reform, is among the critics. He claims that the government should focus on promoting the already-available services instead of spending taxpayer money on Direct File. Additionally, he contends that Congress did not specifically grant the IRS permission to establish the program.
The IRS was given funds under the Inflation Reduction Act, which President Joe Biden signed into law in 2022, and was charged with investigating ways to establish a “direct file” system. The IRS was given $15 million and nine months to report on the operation of this kind of scheme.
The IRS projected that the new program would cost $64 million for 5 million users per year and $249 million for 25 million users when it released its feasibility assessment in May of last year.
“They were not granted authority for the pilot program, and Congress has declared that this was not permitted. There is a legal infringement here, Norquist said.
IRS Commissioner Daniel Werfel emphasized that the organization has “a responsibility and an authority to offer taxpayers different approaches for how to meet their tax obligation” during a recent House hearing.
The future of free-for-all filing
Senior scholar Vanessa Williamson of the Urban-Brookings Tax Policy Center claims that free-filing tax choices in the US fall short of those provided to residents of other countries. For example, pre-populated tax documents are sent to taxpayers in Germany, Japan, Britain, and other nations that are members of the Organization for Economic Cooperation and Development for approval, signing, and return.
“We still haven’t found a solution for this,” she said. “The income tax system in the United States is quite complicated, but it’s obvious that if this is something that other nations have done, then it should be done here as well.”
“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,” says Wheeler of the University of Florida.
“This is a start; we may never get to that point.”
The Inflation Reduction Act, which provided $80 billion for the IRS, will need to be extended in order for the program to expand.
Republicans in the House are attempting to reclaim some of the funds. The debt limit and budget cutbacks deal agreed upon by Congress this summer included a $1.4 billion cut to the IRS. Under a different deal, the IRS will be required to redirect an extra $20 billion over the course of the next two years to other nondefense initiatives.
Warden expresses her hope that the software will be made available to more people and that she will be able to use it once again come tax season.
She said, “I never had the confidence to file my own taxes.” She did, however, say, “I feel foolish for paying all that money every year,” after utilizing Direct File.
SOURCE: NBC NEWS
