In 2024, the IRS will launch a pilot test of its free, direct e-file system for individual tax returns. This would be the first time the IRS offers direct electronic filing, rather than having the filing administrated through a third-party. This comes as more taxpayers than ever have turned to e-filing software. The pilot program has sparked interest in taxpayers as shown by a poll conducted by the IRS, but there is still much to learn about this new program. Anders tax senior manager Rebekah Tucker spoke at length about the new program during her appearance on The Show on KMOX.
IRS to Expand Free Direct Filing Program in Upcoming Pilot Test
Electronic tax filing software, like those offered by TurboTax or H&R Block, are popular ways for taxpayers to file every year. While the IRS already offers a free, direct e-filing service for taxpayers, the agency plans to expand the program in 2024. The biggest change to the program will be the fact that filing won’t be administered by a third-party and will instead be handled directly by the IRS.
According to a poll distributed by the IRS in 2022, about 72% of responding taxpayers expressed at least some interest in the program. That same poll found that 68% of respondents were somewhat likely to very likely to switch from their current self-preparation software to the free version offered by the IRS.
Despite the seemingly high interest in the new program, it’s unclear when the program will become available or whether state tax filing will be included within it. Currently, the direct filing program through the IRS walks taxpayers through both state and federal tax filings so they can be completed at the same time, but it’s not yet apparent if this will also be available under the new system.
Possible Differences Between Paid Filing and Free IRS Filing Programs
One of the major differences between the free, direct IRS filing program and paid tax filing programs like those offered by H&R Block and TurboTax is information retention. The paid programs often retain information from the previous year’s filing, making it easier to file the following year. These programs can also prompt you if you give a different response than what had been recorded the previous year. It’s possible that, in time, the new direct file option from the IRS may have comparable capabilities, but that’s just speculation.
As tax returns become more complex, or if a taxpayer is filing multiple state tax returns, paid tax filing programs often require users to upgrade their account at a higher cost to account for the complexity. It’s possible that the introduction of a free filing program through the IRS will eventually create more competition for these software companies and have an influence on their pricing model. If the program proves to be successful and attracts more users to the new filing system, it could cause the average cost per taxpayer to file taxes to go down.
Keep in mind that not all filing systems are created equally. Taxpayers with complicated tax filings may achieve better tax savings through employing a professional accounting service. Engaging an accountant or CPA can help keep taxpayers compliant with tax laws and regulations in addition to reducing user error. Individuals who own businesses will appreciate how much more simplified the tax filing process is with a trusted advisor at their side.
Anders Tax advisors will continue to monitor updates and changes to the tax filing system to keep you informed and prepared for upcoming tax seasons. Learn more about how our advisors can assist with your tax filing process, and the associated fees, by contacting Anders below.All Insights