Understand the big picture
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| Published: | 2019-Apr-11 |
| Last Updated: | 2020-Mar-01 |
| Principal Writer: | Barry Shatzman |
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Taxpayer First Act
2019 (HR-3151)
DID YOU JUST LEARN SOMETHING?
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Most Americans can file their taxes for free
Do you pay for tax preparation software? Unless your income is in the top 30 percent of taxpayers, you can prepare and file your taxes - both federal and state - for free.
You could have been doing so for the past 15 years, too.
And if you don't qualify you still can access free fillable tax forms.
It's a government program actually called the Free File Program. It requires that free online tax preparation programs and electronic filing be provided to 70 percent of taxpayers based on their adjusted gross income.
The program is an agreement between the Internal Revenue Service (IRS) and the Free File Alliance - a consortium of tax software companies.
Until recently, it was an ongoing agreement that needed to be renewed regularly. That changed when the 2019 Taxpayer First Act made the program permanent.
That's a good thing, right?
Free sounds like a good deal, but there's a catch. It's preventing an even better deal - just having the IRS do your taxes for you.
For most Americans, the IRS has all of the information it needs to figure their taxes. Income for work and interest are reported, and people simply take the standard deductions. And the IRS knows what was withheld.
Those are the only questions most people need to answer when using tax preparation software. So the IRS simply could send you your refund (or a bill). And it could provide you with the option to accept their calculations or file your own return.
So what's stopping the IRS from doing that?
Among its provisions, the Free File Program agreement states that, "During the term of this Agreement, the IRS will not compete with the Consortium in providing free, online tax return preparation and filing services to taxpayers."
In other words, as long as the agreement is in effect, the IRS can't do your taxes for you.
How much do companies want to keep the IRS from developing a free tax-preparation service that arguably most taxpayers would use? They have spent millions lobbying to keep things the way they are.
Although there's no way to establish a direct correlation between campaign donations and policy (that would be a bribe), H&R Block and Intuit each contributed hundreds of thousands of dollars to 2018 congressional campaigns - including to sponsors of the legislation.
Why didn't I know about this?
While tax-preparation software companies want to keep the free program - because it prevents the IRS from calculating your taxes - they'd prefer you pay rather than take advantage of it.
Fewer than 1 of every 30 eligible taxpayers actually use the free services.
The companies barely advertise it. Until recently companies such as Intuit and H&R Block deliberately hid their free services from search engines.
Lawsuits have been filed against the tax preparation companies.
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