The Internal Revenue Service (IRS) – America’s body responsible for collecting US federal taxes – is reportedly working on a new digital tax return system that’s set to be free of charge, representing a colossal threat to the tax-prep market dominated by the likes of TurboTax.
According to The Washington Post (opens in new tab), the proposed government tax software is expected to be available to a select few to try out in preparation for the new year when the US tax year begins, though a full rollout could be months or even years away.
Currently, US citizens will typically pay around $200-300 annually for the privileges of filing their taxes, with only small pockets of the population eligible for free services.
Free tax return in the US
Key to the upcoming system is the Inflation Reduction Act, signed into law fewer than 12 months ago, which places a heavy emphasis on the environment, technology, and the American workforce.
Among other tax-related announcements, such as changes to home energy credits, clean vehicle credits, and changes for businesses, was a $15 million pot of funding to create a new, direct filing system.
A description on an IRS news page (opens in new tab) reads: “The Inflation Reduction Act changed a wide range of tax laws and provided funds to improve our services and technology to make tax filing easier for you.”
A report by the Government Acocuntability Office (opens in new tab) (GAO) indicates that 70% of US taxpayers could be eligible for free tax preparation under the Free File program, but just 3% of all taxpayers use it.
The GAO recommended that the IRS “work with relevant stakeholders to identify and develop additional options for free online filing of tax returns that would reflect current guidelines for federal digital services,” but as of April 2022 the IRS disagreed.
A year later, and several months after the funding had been revealed, and the IRS appears to have turned back on its decision by trialling a free tax filing system.
However, with the Inflation Reduction Act being a decade-long plan, the chances of seeing meaningful change in the near future are all but slim.