By Corinne Murdock |
Gov. Katie Hobbs announced Tuesday that Arizona will participate in the Internal Revenue Service (IRS) free tax filing pilot program.
Under the IRS Direct File Pilot Program, certain Arizonans may file their state and federal returns directly to the IRS for free. While the program would come at no direct cost to those eligible, taxpayers ultimately subsidize this additional service.
In a press release, Hobbs said that the program would make filing taxes “convenient and easy.” Although Hobbs said that taxpayers could file both their state and federal tax returns through the pilot program, the IRS noted that its program would not prepare state returns but would instead guide taxpayers to a state-supported tool to file a stand-alone state tax return.
It’s unclear which Arizona taxpayers may participate: the IRS disclosed that it hasn’t finalized its determinations of who would qualify. Expected, but not finalized, eligibility includes: W-2 wage income, Social Security and railroad retirement income, unemployment compensation, interest of $1,500 or less, Earned Income Tax Credit, Child Tax Credit, Credit for Other Dependents, standard deduction, student loan interest, and educator expenses.
IRS Commissioner Danny Werfel promised to reporters in a call on Tuesday that this program wouldn’t replace popular private tax preparation companies like H&R Block or Intuit’s TurboTax.
“I can’t stress enough that Direct File, if pursued further after the pilot, would be just another choice taxpayers have to help them prepare their tax returns,” said Werfel.
Intuit spokesman Derrick Plummer claimed in a statement to PBS that the direct file program would cost billions of dollars.
“An IRS direct-to-e-file system is redundant and will not be free — not free to build, not free to operate, and not free for taxpayers,” said Plummer.
California, Massachusetts, and New York are the three other states that signed onto the pilot program for the 2024 filing season. The IRS noted that taxpayers in states without an income tax may be eligible to participate as well: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
The direct file pilot doesn’t replace another existing free direct filing service by the IRS, Free File Program (FFP): a public-private partnership between the IRS and Free File, Inc., or Free File Alliance (FFA), a consortium of tax preparation and filing software industry companies. Those with an income of $73,000 or less qualify for a free federal tax return under that existing program.
The FFP was created in 2002 with the agreement that the IRS wouldn’t create its own free tax-filing software. However, the IRS removed that provision from the FFP memorandum in late 2019 following ProPublica investigative reporting that then-members of the FFA, namely Intuit and H&R Block (who together served 70 percent of FFA users), were charging FFP-eligible taxpayers for tax return services. The Treasury Inspector General for Tax Administration (TIGTA) in a follow-up audit found that over 14 million FFP-eligible taxpayers ended up paying for a commercial service for tax returns.
H&R Block departed the FFP in 2020, then Intuit in 2021. Intuit settled last year for $141 million over the claims.
The Government Accountability Office (GAO) found last year that the FFP has been vastly underutilized by eligible taxpayers, and that the IRS faced risks by relying on the private industry to provide free tax filing. Of the 71 percent of taxpayers eligible for FFP, only about three percent participated in 2020. The GAO recommended the IRS develop other free tax e-filing options.
In 2020, TIGTA reported that not many taxpayers used the FFP because it was rife with “complexity and insufficient oversight.”
The IRS promised to publicly share the results of the direct file pilot program once completed. More information on the program may be discovered here.
Corinne Murdock is a reporter for AZ Free News. Follow her latest on Twitter, or email tips to corinne@azfreenews.com.
