The current tax filing system in the US is absurdly complex. Part of the reason is that the tax code is used to achieve various economic and social goals by making them have economic consequences. Another reason is that special interest groups lobby hard to get favorable items put into the code to benefit their own interests.
One of the less-publicized items in the big bill that was passed recently known as the Inflation Reduction Act is a provision to allow the IRS to study the creation software that people can use to file their taxes online.
The sweeping domestic policy bill passed by the House and Senate last week mandates that the IRS study options to provide a free tax filing option for Americans. That study represents a threat to the for-profit tax prep industry dominated by TurboTax, a product of the Silicon Valley company Intuit.
Unlike many developed countries, the U.S. does not offer free tax filing services for taxpayers, who instead pay billions of dollars every year to highly profitable private tax prep companies.
This is an obvious service that is long overdue. Currently, the IRS is forbidden to do it because of lobbying by the tax preparation companies who want to profit off the complexity by claiming that they will do your taxes for you. In return for this gift to their profits, these companies said that they would offer free online preparations services to those with lower incomes. But as ProPublica reported, they make the free service very hard to find and even then, trick consumers who qualify for it into buying their services.
The industry has tried to block or subvert a government free tax filing system for decades. ProPublica has reported for years on how companies have sometimes even tricked customers into paying for services that they should have gotten for free. Those articles led to investigations by federal agencies and states as well as a barrage of consumer legal actions. The reporting was also cited by Senate Finance Committee chair Ron Wyden, who was behind the new provision. The companies maintain they did nothing wrong.
As we detailed in our story on Intuit’s 20-year campaign to prevent a government-provided tax filing service, the so-called Free File program was flawed from the start. Supposedly available to 70% of taxpayers, it only reached between 2% and 3% in recent years. After ProPublica reported that Intuit and others were intentionally making it harder for taxpayers to find the program online, there was renewed focus on Free File, including numerous investigations. The company stopped including code on its Free File website that made it harder to find the free version. Eventually, both Intuit and H&R Block, by far the largest providers, pulled out.
In a recent settlement with state attorneys general, the company agreed to pay $141 million to filers who paid for tax prep services they were eligible to get for free. More than four million people are expected to receive payments of up to $90 each in the coming months. Intuit maintained it did nothing wrong.
The next step is to eliminate yet another feature that is superfluous. The IRS gets much of the financial information on ordinary taxpayers from their employers and the financial institutions they deal with. And yet, each year, each person has to get all the records together and enter those numbers into the forms when the IRS could pretty much fill most of those forms automatically for you and send them to you just to check for accuracy.
Through information forms like W-2s, the IRS already has the info on wages and other forms of income in its systems that it would need to provide such a service. A recent study by researchers from the Treasury Department, Minneapolis Federal Reserve and Dartmouth College found that “between 62 and 73 million returns (41 to 48 percent of all returns) could be accurately pre-populated using only current-year information returns and the prior-year return.”
At a Senate hearing in June, Treasury Secretary Janet Yellen said she supported a new free filing service. “We need to develop a new system,” Yellen said in an exchange with Sen. Elizabeth Warren, D-Mass. “There’s no reason in the world that a modern economy shouldn’t have a system that makes it easy for such a large group of taxpayers to file their returns.”
The new law only provides a provision for the IRS to study the issue. It will take a while for it to actually develop the software and have it actually implemented and you can bet that the for-profit tax preparation companies will keep objecting all the way.
I have never used the tax preparation software provided by the private companies. I did not see why I should give my information to them, preferring to do the taxes myself, calculating them using a spreadsheet and then entering them on the fillable forms that the IRS provides. It is not that hard.
From the embedded text in the OP,
They may have done nothing illegal, but it’s clear they did something wrong.
I also …
One year, my wife convinced me to use a CPA (an alumnus of her college), and it was much more of a pain than doing it myself. I collected all the information, gave it to him, and then he did them wrong, so I had to send the forms back to him, and he still did it wrong. It would have been less work for me if I had justs done it myself, even though it was the first time I had to do the self-employment stuff so there was a learning curve.
Another year, we used TurboTax (back before you had to be connected to some TurboTax server to use it), and it was also a pain. If you don’t live the way TurboTax expects you to live, you have to do overrides, and the overrides don’t propagate, so you end up having to do all the calculations yourself anyway.
It’s just easier to do it myself.
Also, I don’t plan to use the IRS’s online tax software, either. I wouldn’t trust whatever they come up with to be any better than TurboTax (see above.) And I’d rather keep my data at home, where I can keep an eye on it, than trust some monster bureaucracy not to mangle, misuse, and lose it.
Reginald Selkirk says
The IRS does have a method for free online filing called “Free File Fillable Forms”. It has restrictions and limitations, but I manage to make use of it.
My state does not. For that, I download fillable PDF forms, fill them out, print them, and send them in through the U.S. Mail.
consciousness razor says
TurboTax doesn’t do free filing anymore (as they announced in July 2021), so that’s not a useful comparison.
Besides, maybe things are just a little too simple for me (however, see below), but it’s not like I’m really clamoring for a “better” product or whatever. I don’t need much, honestly. If I don’t have to pay merely to file my taxes, and I don’t need to get a bunch of paper forms and mail them out, since it’s all online and can be done fairly quickly, that’s enough.
I could imagine the system they (eventually) come up with only working for certain people who have very simple taxes — basically, you’ve got a W-2, maybe a 1099-INT for a savings account or whatever, but it can’t handle anything else. That would be dumb, just plain useless (never mind better or worse) for many people including me, but I could see them rolling that out (maybe, in a few years) since it would be so easy for them to do, while claiming it works for “millions” of people. Do I expect them to be able to handle any of the forms that the IRS itself produces and which people might have to use? No, I don’t expect it. Should they? Yes, absolutely. It’s their fucking paperwork, most of which I probably shouldn’t have to fill out myself anyway.
This year, it certainly seemed at first like I might still be able to file for free through TurboTax, as I had before which simplifies things somewhat … but no. (I hadn’t yet heard about the lawsuit at that point.)
If you google “turbotax free file” even now, the first hit for me was the turbotax.intuit.com website,* still marketing a “free” version for which you may “see if you qualify.” But that’s total bullshit. Also on the first page of search results: another site for the Google app and another for the Apple app, all “free” and also bullshit.
Reginald Selkirk says
IRS list of companies participating in their IRS Free File Online program
Each lists requirements for income, etc. to use their service free.
Google “ELSTER” about such a thing in Germany. Exists for 5 or 10 years now, offered by the German equivalent of the IRS for free.
“ELSTER” is an apronym for “ELektronische STeuer-ERklärung” = electronic tax declaration, and the German word for magpie, as in “thieving magpie”.
I used to use TaxAct back when it was a cheap option. When they suddenly jacked up the prices (did some Shkreli types buy them?) I searched around and found FreetaxUSA. Federal is free and State costs $12.95, $6 or so extra for premium option. I gladly pay that to avoid having to do all calculations by hand.
Type in your W-2s, 1099s, capital gains, mortgage interest etc, answer a bunch of questions and you’re done. Typically I do my (somewhat simple) taxes in about 45 minutes to an hour each year. Well worth it.
Forgot to add: With FreetaxUSA, If you are ready to print out the state form and mail it in, state taxes are free too. I like the online option and I consider paying them $12.95 a fair price for the convenience.
For a few years or so, I’ve also been using Free File Fillable Forms. It’s not great, but it’s free, and it lets you file electronically.
It’s basically the paper version, except you get to type in all the boxes instead of scribbling with a blue or black ink pen. And you have to manually enter all the data from W-2s, etc. It will do some of the simple math calculations. Maybe it’s easier for me because I used to have to fill out the hard copies of 1040-EZ and 1040A by hand, with a calculator and the instruction booklet for a decade or so before electronic filing even was a thing. Also, I’d rather go back to scribbling on the paper hard copies than give Turbo Tax, H&R Block, or whoever any money. Fuck those assholes…
The IRS website has had free tax preparation software for years now. There are two kinds: the free fillable forms, which you have to do the tax prep yourself or Free File.
Right now, if you AGI is 73K or less, you have the free tax prep software option.
It’s possible that the Inflation Reduction Act will provide tax prep software for everyone, regardless of income levels.
I just don’t expect the very wealthy to use it, because they already have accountants/CPAs/lawyers running their financial affairs already, so adding tax preparation to the list isn’t much of a cost increase. Also, the wealthy have such complicated financial instruments and tax dodges that it is likely that they would use a tax preparer rather than an online software program.
Also, if you type in “VITA” into the IRS search function, it will bring up free tax preparation from volunteers during tax season.
VITA Volunteer Income Tax Assistance
TCE Tax Counseling for the Elderly
AARP also does free tax preparation & they usually have a link on that webpage.
“The next step is to eliminate yet another feature that is superfluous. The IRS gets much of the financial information on ordinary taxpayers from their employers and the financial institutions they deal with. And yet, each year, each person has to get all the records together and enter those numbers into the forms when the IRS could pretty much fill most of those forms automatically for you and send them to you just to check for accuracy.”
It’s an adversarial system, like the court system. It’s also a bit of a stretch to say that the IRS could just give you the information. They can, but not usually until late spring/midsummer, when all of the corporate tax returns are in and processed. So your employer is responsible for sending you a W-2, your investments are responsible for sending you a 1099 and so on. The way the system works is that your income source sends you a W-2/1099/K-1/etc. and sends the same info to the IRS. You file, the IRS looks at what you sent, the income source sent and if everything matches, you’re good. If it doesn’t, that’s when there is a problem. So your bank is sending you and the IRS the same 1099-INT, theoretically at the same time. If you wanted to get that from the IRS, you’d have to wait until after filing season.
@4 TurboTax is pretty crappy too. For several years it would not file the Affordable Care Act forms--you had to print them and mail them. TT would calculate them for you, it just wouldn’t e-file them for you. And truthfully, there’s no shortage of crappy *human* tax preparers either. Also, a lot of the online “free” tax prep doesn’t charge you for the tax prep but they DO charge you for a transcript, which is BS as far as I’m concerned. Or they offer to keep your information on file, then charge you for access.
“Supposedly available to 70% of taxpayers, it only reached between 2% and 3% in recent years. ”
Are those numbers for the percentage of people who *qualify* for the free service or the percentage of tax filers who actually *use* it? If at the current cutoff of 73K AGI, if that works out to 70%, that’s one thing, It’s a completely different matter if only 2-3% of the *eligible* people *use* it, as opposed to 2-3% of all tax filers *qualifying to use it*. The ProPublica article didn’t make the distinction, as far as I can tell.
Especially about giving HRB, TT, etc. any money. HRB SUCKS. My friend’s parents are STILL paying the IRS back for HRB’s giant screwups. And they went to HRB in person. Didn’t use the software. Their HRB tax prep had all sorts of ahem, magical ideas about what qualified for a tax deduction. They got caught in a spot check sweep, had to pay the refund money back, plus interest and penalties.
Either get a legit CPA or do it yourself if you have simple taxes.
This is another one of those things that people living in the civilised world seems completely baffling.