It’s supposed to be free for most Americans to file their taxes online, but very few households actually use the no-cost service that the Internal Revenue Service provides in partnership with tax preparation companies like Intuit, the maker of TurboTax.
Now that partnership is faltering, with Intuit announcing last week it would no longer participate, after H&R Block, which makes its own tax-filing software, ditched the government last year.
Democrats could direct the IRS to create its own free program in the big piece of legislation they’ll be working on this fall, according to Sen. Ron Wyden (D-Ore.), chair of the Senate committee that oversees tax policy.
“They sure have made the case that I’ve been making that we ought to have free files, so we’re definitely going to be looking at those issues,” Wyden told HuffPost.
The Free File Alliance is supposed to let people file their taxes online for free if their income is $72,000 or less, but it does a bad job. Of the more than 100 million eligible taxpayers, only 2.4% used it in 2019, according to the Treasury inspector general for tax administration. And more than 34 million households eligible for free tax filing wound up paying companies like Intuit to file their taxes instead.
The Free File Alliance, the group of private companies partnered with the IRS to provide this service, claims the free-file tool is easy to use and accessible. But the free option is rarely marketed. As reported by ProPublica in 2019, the private companies in the Free File Alliance have vigorously fought against the IRS creating its own tool out of fear that it would hurt their business.
Intuit said in a statement late last week that “due to the limitations of the Free File program and conflicting demands from those outside the program, we are not able to continue in the program” after October.
“They were never really interested in Free File, what they want to do is to pretend they were interested in free services and basically leverage that kind of opportunity to solve a lot of their stuff,” Wyden said of companies in the alliance.
Sen. Elizabeth Warren (D-Mass.) suggested Dems might push the IRS to make its own free tax-filing site without passing a law requiring it.
“Right now, we’re pushing the IRS to start its own free filer program,” Warren said. “The question is whether we need to push them harder to get it done.”
(Congress could also require the IRS to do most people’s taxes for them with a “simple return,” since the agency already has most people’s income information, but that idea is off the table.)
Warren acknowledged that the IRS is “badly underresourced,” but wouldn’t commit to pushing for any specific funding for the creation of a free-filer program.
The Free File tool has come under particular scrutiny in the last year as the primary way for the IRS to get Economic Impact Payments, or stimulus checks, to low-income and no-income families that don’t make enough money to regularly pay taxes. It also remains the only way for the very poor to sign up for the newly expanded child tax credit.
The tool continues to be extremely inaccessible for the very poor, as it requires users to have email addresses, and have levels of tax literacy often inaccessible for people who do not regularly file taxes. It is also only available in English.
Democrats are planning to use a special budget reconciliation process later this year to pass a huge domestic policy bill, with billions for child care, universal preschool and new Medicare benefits. But lawmakers are still working on the broad outlines of the bill and have been unable to say definitively what smaller policies might be included.