Peter Morgan / AP
An Internal Revenue Service 2023 1040 tax form and instructions are shown on Jan. 26, 2024 in New York.
Published Tuesday, March 12, 2024 | 8:22 a.m.
Updated Tuesday, March 12, 2024 | 11:02 a.m.
Federal officials announced today that an estimated 480,000 Nevada taxpayers are eligible to participate in a free electronic tax filing service.
It’s part of a pilot program that allows returns to be filed directly to the Internal Revenue Service.
Nevada is among the 12 states to take part in the Direct File Pilot Program, available in both English or Spanish, according to the IRS.
Direct File can be used from a smartphone or personal computer and is a free, secure option for taxpayers with simple tax situations, the IRS said.
The program’s user interface shows taxpayers the math of their return so they can be sure the numbers they are submitting to the IRS are accurate, the agency said. The application also features live customer service support.
“Direct File ensures taxpayers get their full refund by showing them the numbers and explaining credits they are eligible for,” Deputy Treasury Secretary Wally Adeyemo said in a statement.
“Our priority in launching this new service is to save taxpayers time and money they can spend on themselves and their families,” he said.
The Treasury Department estimates a third of all federal income tax returns could be prepared using Direct File and that up to 19 million taxpayers are eligible to use the tool this filing season, which ends April 15.
The Direct File program is part of the Biden administration’s proposed overhaul of the IRS and is funded by the Inflation Reduction Act.
To get started, visit https://directfile.irs.gov/.
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 said.
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 is “better off not wasting taxpayer money on Direct File” and should 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.
The Associated Press and Sun staff writer Casey Harrison contributed to this report.
