The IRS has launched a new, free way to file your federal tax return online this year, and early reviews are positive—though not from the tax preparation industry, whose business it threatens.

In the first week after its launch, 30,000 people have signed up for, started, or finished tax returns on the new Direct File pilot program website, IRS officials said. An estimaꦉted 4,500-5,000 people ꦜcreate accounts every day. Counting users who signed up for an earlier, limited test period, there were 51,000 total users as of March 19. 

The program is still in its infancy—those figures are a drop in the bucket compared to the estimated 19 million people eligible for the pilot program in the 12 states where it’s available, and the 71.6 million who had filed their taxes as of March 15.

Despite i🃏ts small siz🥂e at the outset, the introduction of the Direct File website is a milestone that could be the first step in changing the way Americans file their taxes. 

Until now, the U.S. has been an🌠 outlier among developed nationsꦯ as taxpayers had no way to file online for free directly with the government. Instead, U.S. taxpayers rely on third-party services such as TurboTax or H&R Block. If you wanted to skip the middleman, the only option was to break out the pen and ink and mail in paper forms.

While advocates have cheered the developments, tax preparation companies who have long lobbied ag🌠ainst a federal filing program say it’s unnecessary and costly to the governm๊ent. 

Khanh Tran, a computer science student at Illinois Wesleyan 🍌University, helped his parents use the new website and said the proce💛ss was simple and user-friendly. He typically helps his 65- and 66-year-old parents through the tax filing process. With Direct File, they were able to fill everything out without his help, he said. 

“They didn’t need to s🍒earch Google for this term or that term,” he said. “I think it’s a really good option for people.” 

Users can ask IRS employees for help at any step in the process. During the testing period, 3,800 people used the live customer service feature and typically waited 10 seconds for help, or about 40 seconds during busy times, according to IRS officials.

Tran said he also appreciated the fact that the website is free. Americans spend an average of $104 on tax prep services each year, according to an estimate by the National Taxpayers Union Foundation, an advocacy group. Services like TurboTax charge up to $209 to file a federal ⛎return online.🌃

Starting Small

Some taxpayers have been able to file their federal taxes online for free through private industry. Free filing options often come with restrictions on income or the types of tax returns they accept. The IRS Free File program, which offers free tax filing through third-party companies, is only , and according to the IRS itself, few people eligible actually know about the program and use it.  

Companies also offer their own free tax filing services outside the government program, often with restrictions on which tax situations are eligible. After a 澳洲幸运5官方开奖结果体彩网:l♛a🍸wsuit by the Federal Trade Commission, TurboTax prominently advertises that 37% of users qualify for the “free edition” of its꧙ services.

Much like the free options offered by companies, the pilot version of Direct File is restricted in several important ways. First, it’s only available to taxpayers in 12 states (Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington state, and Wyoming.)

Second, it only supports certain, relatively common kinds of income, tax deductions, and credits. For example, you can use it to report income from a job or Social Security, take the standard deduction, and have a tax credit such as the child tax credit, but if you made money from gig work, or want to itemize your deductions, you aren’t eligible.

The idea is to start small with a limited test and potentially expand the program and add more features in future tax seasons if all goes well, said Jason Miller, deputy director for management at the Office of Management and Budget, the White House’s internal expert on the Direct File rollout.

“There's a range of different criteria that the Treasury Department will look at to determine the path forward. But the first and most important is the experience of people that are using the product, and that has continued to be positive thus far,🍸” Miller said. “As we continue to scale we will get more feedback from real people who are using 😼it in these 12 states.”

I🧔n the end, Tran was disappointed to find that he couldn’t actually file his taxes using Direct File this year—it doesn’t accept returns from residents of New Jersey, where his parents live. (The version of the website today asks what state you live in up front to rule out ineligible taxpayers.) 

Consumer Advocates’ Dream, Industry’s Nightmare

The rollout of Direct File fulfills a longtime goal of consumer advocates and progressive politicians, who have called for the IRS to give taxpayers a way to file online directly with the agency and bypass the expense of third-party companies.

Elizabeth Warren, a Democratic senator from Massachusetts, praised the tool last week at a hearing of the Senate Finance Committee.

“This is a big win for taxpayers,” she told Treasury Secretary Janet Yellen, whose department oversees the IRS. “No one is excited to go pay their taxes. But if you are going to pay your taxes, making it free, making it easy, trying to do everything we can to make government work for the American consumer, I think is terrific."

The programs’ rollout drew criticism from the tax prep industry, which is worth about $11 billion a year according to market research firm Gitnux.

The American Coalition for Taxpayer Rights, a trade group representing the tax prep industry, questioned the Direct File’s cost compared to the relatively small number of taxpayers who have used it so far. The IRS has yet to release information on the cost of the Direct File program, which was funded as part of a broader push for modernization and improvements to customer s𒁃ervice by the Inflation Reduction Act of 2022.

“It's unnecessary,” said David Ransom, a spokesperson for the coalition. “It's costly. We question whether real people really want it, in light of the fact that there are so many other free offerings that are available.”

The coalition also argues that creating an online tax filing portal will make the IRS too powerful and that, unlike software such as TurboTax, the IRS has no incentive to help users find the most deductions and minimize their tax liability, and instead wants to maximize the amount of taxes it collects.

Until this year, those arguments had prevailed. The last time the government took steps towards letting people pay taxes directly online was the Cyberfile program of the mid-1990s. That program, never made available to the public, was shut down in 1996 after auditors found numerous security risks, including that the servers—all located in one building—could be destroyed by a tall employee bumping their head on a system of overhead sprinklers that was installed under a low ceiling.

Tax prep companies have lobbied for years against government efforts to build a tax filing website. The largest tax prep companies have spent $90 million on lobbying efforts on Free File and other issues since 2003, according to a 2023 analysis by Open Secrets, a nonprofit group that tracks the influence of money on politics.

Miller dismissed the idea that the IRS has a conflict of interest when it comes to helping people prepare taxes.

“The IRS’s interest is foℱr p💯eople's taxes to be filed accurately,” he said.

Correction—March 28, 2024: A previous version of this article misidentified how much money tax preparation companies spent on lobbying since 2003. It was $90 million.