IRS Expands Testing of Free Online Tax Filing Program to Include Three States

IRS Expands Testing of Free Online Tax Filing Program to Include Three States

The Internal Revenue Service (IRS) is making strides towards its goal of implementing a free online tax filing system, known as “Direct File.” Recently, the IRS announced that it is expanding its pilot phase testing of the program to include three states that have income taxes: Arizona, New York, and Massachusetts. This expansion marks an important step in the development of the program, which aims to provide a user-friendly and efficient platform for taxpayers to file their taxes online.

The initial pilot phase of Direct File began with a small group of government employees. The IRS then extended the testing to around 1,200 taxpayers in non-income tax states who volunteered to participate. According to the IRS, these early users have reported satisfaction with the program, finding it straightforward and easy to use. Many have successfully filed their taxes in less than 30 minutes, a testament to the efficiency of Direct File.

The current version of Direct File focuses primarily on handling wage income and can process a limited number of tax credits, such as the child tax credit. This limited scope allows the IRS to fine-tune the program and ensure its smooth integration with state systems. Internal testing is ongoing, and additional measures are being taken to address any technical challenges that may arise.

While Direct File has received positive feedback from early users, there has been opposition from Republican lawmakers. A group of 13 GOP Attorneys General wrote a letter expressing their concerns about the program. They argue that the IRS lacks the authority to implement such a system and that it could harm low-income Americans. However, IRS Commissioner Danny Werfel defended Direct File during a congressional hearing, stating that it provides taxpayers with an optional approach to meet their tax obligations.

The IRS’s decision to expand testing to include states with income taxes aligns with the agency’s commitment to gathering comprehensive feedback and ensuring the program’s success. The IRS aims to address any challenges that may arise, including the integration of state tax returns into the Direct File platform. This integration is crucial to meet taxpayers’ expectations, as they are accustomed to filing federal, state, and local returns simultaneously.

To assess the feasibility of incorporating state tax filing into Direct File, the IRS sought input from states and the Federation of Tax Administrators (FTA). The agency is keen on understanding the challenges that states may face when integrating with the program and is actively seeking involvement from interested states.

Security and data privacy are key considerations in the development of Direct File. An independent third-party analysis conducted by New America and Professor Ariel Kleiman highlighted the imperative need for customer support and robust data protection measures. The report emphasized the importance of a gradual rollout to address these concerns effectively.

As the IRS continues to expand testing and gather feedback, it remains committed to delivering a user-friendly and efficient online tax filing system. The interest shown by taxpayers and the technical feasibility demonstrated by the agency’s review to Congress indicate that Direct File has the potential to revolutionize the way Americans file their taxes. With continued progress and collaboration, the IRS is poised to provide taxpayers with a modern and streamlined approach to tax filing.