IRS free direct file limited pilot program

[PATAX]

The pilot program will be open to certain residents of thirteen states that have simple returns: I believe Arizona, California, Massachusetts, New York, Alaska, Florida, New Hampshire, Nevada, South Dakota, Texas, Tennessee, Washington, and Wyoming. The first four states have decided to opt in. The last nine states do not have a state individual income tax return. I do not think this will have much of a short-term effect on paid tax professionals. But will it follow the trajectory (over the long term) that the e-file program did? The 1040 IRS e-file program was initially voluntary. I believe their goal was approximately 80% of filers using this, but I believe they did not even reach approximately 50%, until they mandated it. What do you guys think, including @IRonMaN 

[rbynaker]

I think this is great for the "just a w-2" folks but unless Congress chooses to simplify the tax code it's never going to be robust enough for complex returns.

This is how "free file" was supposed to be, but then the free file "partners" decided to start trying to scam people into an "upgrade" that they didn't need.

[BobKamman]

Simple returns?  Arizona, California, New York, Massachusetts?  Maybe for lower-AGI, non-itemizers. You have an indefinite antecedent there, on second reading maybe you mean the residents have simple returns, not the states.  

It's progress, but mostly because it moves the people using the private-sector programs into a government program where their data may be safer and the state return is included in the same step.  (At least with California, online free filing is available through a separate source.)  

Will it ever come to the Rust Belt states, with their city and county returns?  If we believe what we hear about AI, maybe all things are possible.  

[PATAX]

@BobKamman 👍yeah I meant individuals with simple returns. I hope they never expand it to include local earned income tax returns here in Pennsylvania (We don't have a County tax). Years ago we had local wage Tax Collectors that took care of this. We knew them personally and everything worked well. Then in Harrisburg they decided to basically make one tax collector take care of all of the townships/municipalities in a county (for smaller counties without big population, which is most of the counties). It was a big mess. I had many clients receiving  erroneous notices.  Like the old saying goes Bob, if it's not broken, then don't fix it.

[IRonMaN · Accepted solution]

If all of my clients were simple returns that consisted of a husband and wife each receiving a W-2, and the IRS "paid those folks to file for free", I would still keep half of my clients.  Some would be afraid of pushing the send button and some would just sleep better at night because my name was on the return 😲

[PATAX]

@IRonMaN 👍 you are exactly right. We just don't have too many simple returns like years ago. Even the child dependent returns can be a pita. And you are right they come to us because they have confidence in us, And when they see my thick pop bottles they have lots of confidence, because they know I got those pop bottles from reading, and not hanging out in Nikola's Bar and Grill.😉🤓🐕☝

[athaureaux6]

I personally do not think that will affect us. As some people have said unless they do something big with the code, there is no so called simple return. I believe with the new 1099 k and ev credits and homeowner improvement credits, we should be fine, I think even customers that used to do it themselves, if they received a 1099 k they will nervous about making a mistake when reporting that and will come back to us. No need to worry. It is my personal opinion though. 

[sjrcpa]

What, me worry? 

[Jim-from-Ohio]

May not be back for tax year 2024:.  I get the feedback from my clients they simply do not want to mess with taxes themselves, free or not.

The IRS said Friday that more than 140,000 taxpayers filed their taxes through its new direct file pilot program and participants saved roughly $5.6 million in fees they would have otherwise spent with commercial tax preparation companies.

The government pilot program, rolled out this tax season in 12 states, allows people with very simple W-2s to calculate and submit their returns directly to the IRS for free. Those using the program claimed more than $90 million in refunds, the IRS said.

But despite what IRS and Treasury Department officials said was a successful rollout, they aren't saying yet whether the program will be available next year for more taxpayers. They say they need to evaluate the data on whether building out the program is feasible.

“We will take time to analyze the data and collect feedback from a wide variety of stakeholders before making a decision about direct file's future,” IRS Commissioner Daniel Werfel said on a call with reporters.

The program, which became available to the public on March 8, cost roughly $10.5 million for technology and product development and another $2.4 million for customer service, cloud computing and user authentication. 

While the Treasury set a goal of reaching 100,000 users for the pilot, 140,803 completed their taxes using the program. More than 3 million people used the IRS' eligibility tracker to see if they could use the program, and 423,450 people logged into the program.

“Regardless of where it goes from here, I am proud of the success of the direct file pilot," Werfel said.

Commercial tax prep companies that have lobbied against development of the free file program say free file options already exist.

Intuit spokesman Rick Heineman said “the reality remains the same today as it did the day Direct File launched; 100% of Americans can already file their taxes completely free of charge, free to the government and actually free to taxpayers.”

[PATAX]

@Jim-from-Ohio approximately 141,000 taxpayers in apparently 12 States using that doesn't sound too successful to me.

[BobKamman]

"Intuit spokesman Rick Heineman said “the reality remains the same today as it did the day Direct File launched; 100% of Americans can already file their [notice how he left out "federal"] taxes completely free of charge, free to the government and actually free to taxpayers.”

The reality, of course, is that most Americans can't file their state returns, not to mention those in the Rust Belt who also must file local returns.  But is the answer for the government to spend $13 million to save 140,000 people $5.6 million?  (As a measuring stick, consider the weekday circulation of the Washington Post of 139,000.)