Camalot Todd, Nevada Current
February 7, 2024
The IRS announced eligibility requirements for the free, direct filing system that Nevada and 12 other states are piloting during the 2024 tax season, helping an estimated 20 million people. But it won’t be fully functioning until mid-March, after many who qualify have already filed.
The new “Direct File” system is currently open on a limited basis to federal and state employees, as long as they meet eligibility requirements, in Nevada and the other dozen states participating in the pilot program.
“They are ‘rolling it out in phases’ – I expect that means we might get access before states with an income tax like California and New York,” two other states that are in the pilot program, said Francine Lipman, a professor at UNLV’s Boyd School of Law and a former Nevada Tax Commissioner under Sandoval and Sisolak.
“Obviously, the coordination will be more challenging to navigate and to test,” in those states, Lipman said.
Taxpayers in the U.S. spend 1.7 billion hours and $31 billion annually on tax preparation, with the average person spending 13 hours and $270, to file despite the bulk of people having simple tax cases and qualifying for free programs.
“It shouldn’t be stressful, it should be a positive thing because the way the system is designed, most people get a refund,” Lipman said.
The program aims to relieve stress for many taxpayers with simple returns and offer an alternative to Free File, the public-private partnership between the IRS and tax filing software industry giants. Those companies have have come under scrutiny for embedding misleading practices in the Free File process in an effort to charge tax filers additional and unnecessary fees.
A ProPublica investigation found that companies like Intuit used code to make the Free File landing page on TurboTax hidden on search engines, charged for other products that were not free or for commonplace tax forms, and only disclosed the paywall pop-up for these extra charges when the taxpayer was already deep into the filing process.
Lipman said that people in occupations like food service workers or those whose income consists solely of an annual salary would benefit most from the new pilot program.
In Nevada and the dozen other states participating in the Direct File pilot program, eligible taxpayers include those whose incomes include W-2s, unemployment benefits, interest up to $1,500, and social security and railroad retirement benefits.
The Inflation Reduction Act (IRA) funded the Direct File pilot program as part of $80 billion for the IRS to address severe understaffing, modernize outdated technology, and enhance enforcement. The enforcement component’s focus is on high-income filers, partnerships, and corporations that have abused the nation’s complicated tax code to avoid paying, but Republicans, counting on common antipathy to taxes and tax collectors, have attacked the IRS funding measure.
The IRS will use $15 million of IRA funding to implement and monitor the new pilot program.
When Free File was created in 2003, the IRS agreed it would use software developed by private companies to help taxpayers file federal returns either through the IRS company websites, and the IRS would refrain from developing its own software.
Those companies, including H&R Block and Intuit, which oversees TurboTax, lobbied against a simpler and free tax filing system directly through the IRS that would bypass private companies, according to a 2022 report by the Government Accountability Office (GAO).
Under the 2003 agreement, tax filing services are provided for free for certain taxpayers, but companies contracting with the IRS could still charge those taxpayers for other products. A 2019 addendum to the agreement lifted the restrictions for the government to create its own e-filing software (Direct File) and blocked tax prep companies from blocking the Free File search results.
Direct File, the new program, is not available for those whose income is from a personal business or gig economy employment, has itemized deductions, or who use the Saver’s Credit or Premium Tax credits.
The program is also not the best option for college students, who qualify for the American Opportunity Tax Credit and the Lifetime Learning Credit, which are not included in the Direct File pilot program, Lipman said
Taxpayers who don’t want to wait for the Direct File program to go live in March can still file through the traditional Free File program provided by private companies in partnership with the IRS.
For those not eligible for Free File or the Direct File programs, there are other filing options, including nvfreetaxes.org, a free in-person filing system for Nevadans including gig workers and students.
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