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Democrats Have The Opportunity To Expand Free Tax Filing.

Democrats Have The Opportunity To Expand Free Tax Filing.

Most Americans are supposed to be able to file their taxes online for free, but only a small percentage of households use the free service provided by the IRS in collaboration with tax preparation companies such as Intuit, the maker of TurboTax.

That collaboration is now in jeopardy, with Intuit announcing last week that it would no longer participate, following H&R Block's departure from the government last year.

According to Sen. Ron Wyden (D-Ore.), chair of the Senate committee that oversees tax policy, Democrats may direct the IRS to create its own free program in the large piece of legislation they will be working on this fall.

“They certainly have made the case that I’ve been making that we should have free files, so we’re definitely going to look at those issues,” Wyden told Stardia.

The Free File Alliance is supposed to allow people to file their taxes online for free if their income is $72,000 or less, but it fails miserably. According to the Treasury Inspector General for Tax Administration, only 2.4% of the more than 100 million eligible taxpayers used it in 2019, and more than 34 million households eligible for free tax filing ended up paying companies like Intuit to file their taxes.

The Free File Alliance, a group of private companies partnered with the IRS to provide this service, claims the free-file tool is simple to use and accessible, but the free option is rarely marketed. As ProPublica reported in 2019, the private companies in the Free File Alliance have vigorously fought against the IRS developing its own tool out of fear that it would harm their business.

Intuit said late last week in a statement that “due to the limitations of the Free File program and competing demands from those outside the program, we are unable to continue in the program” after October.

“They were never really interested in Free File; what they want to do is pretend they were interested in free services and basically leverage that kind of opportunity to solve a lot of their problems,” Wyden said of the alliance’s companies.

Sen. Elizabeth Warren (D-Mass.) suggested that Democrats might pressure the IRS to create its own free tax-filing website without enacting legislation mandating it.

“Right now, we’re pushing the IRS to launch its own free filer program,” Warren said, “but the question is whether we need to push them even harder to get it done.”

(Congress could also require the IRS to do most people's taxes with a "simple return," since the agency already has most people's income information, but that idea has been rejected.)

Warren acknowledged that the IRS is "badly underresourced," but she refused to commit to pushing for specific funding to create a free-filer program.

The Free File tool has come under particular scrutiny in the last year as the primary way for the IRS to get Economic Impact Payments, or stimulus checks, to low-income and no-income families who don't make enough money to pay taxes on a regular basis, and it is also the only way for the very poor to sign up for the newly expanded child tax credit.

The tool remains extremely inaccessible for the very poor, as it requires users to have email addresses and has levels of tax literacy that are often inaccessible for people who do not file taxes on a regular basis, and it is only available in English.

Democrats plan to use a special budget reconciliation process later this year to pass a massive domestic policy bill that includes billions for child care, universal preschool, and new Medicare benefits. However, lawmakers are still working on the broad outlines of the bill and have not been able to say definitively what smaller policies might be included.

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