IRS Could Be Testing a Free Electronic Tax-Filing Service – CNET [CNET]

Some taxpayers could get to try the program as early as January.

Some taxpayers could get to try the program as early as January.

Imagine a day when you might not need to pay for a tax-filing company, because the Internal Revenue Service is offering the same electronic system for free. That day could be sooner than you think. The IRS is working on its own system to allow US taxpayers to file their tax returns electronically and for free, The Washington Post reported on Monday.

It’s possible the prototype program could be used by a small group of taxpayers as early as January 2024, according to the Post’s report. The paper noted that the government software, developed by the IRS and US Digital Service, the White House’s technology consulting agency, could “disrupt” the $14.4 billion tax-prep industry.

The Post credited its story to three current and former agency officials. The IRS did not immediately reply to a CNET request for comment.

Such disruption is not completely unexpected, and there’s a complicated history. Back in 2019, Congress passed the Taxpayer First Act, in which the IRS agreed not to create its own system as long as tax-filing corporations such as H&R Block and Intuit’s TurboTax provided free services to qualifying taxpayers by way of the Free File Alliance.

But there’s been trouble with this plan. As of 2022, Intuit and H&R Block no longer participate in the free tax help program. And as we recently reported, TurboTax must pay $141 million to nearly 4.4 million taxpayers who tried to use free tax programs but were directed to paid products instead. So there’s been renewed interest in a change to the system.

The Inflation Reduction Act of 2022 included $15 million for the IRS to investigate the creation of a direct filing program. A report on the matter is expected this week from the New America think tank.