The IRS Is Expanding Its Alternative Tax-Filing Software
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Here's your Money Briefing for Wednesday, June 5th. I'm J.R. Whalen for The Wall Street Journal. Filing your taxes yourself often involves paying for software. That could change next year. The IRS is planning to expand the availability of its free tax filing system.
So the IRS sees it as an option, as a different way of doing it if you don't want to pay for advice, that they'll offer this for you just like they offer forms for you to fill out. This is just sort of guiding you through the forms is what direct file does, just like TurboTax does.
We'll talk to Wall Street Journal tax reporter Richard Rubin after the break.
Listen at schwab.com slash washingtonwise.
Taxpayers who file their returns themselves could have a free software option next year. Wall Street Journal tax reporter Rich Rubin joins me. Rich, why did the government launch DirectFile?
The idea was just to give another option to taxpayers, to provide a way for people to file directly with the government using software created by the government without having to go through a third party. And they thought this might be an option that they could technologically do and that might prove attractive and useful for some subset of people.
Yeah, there are a lot of players in this field. It's kind of a crowded tax software market. Intuit and H&R Block and several other companies already offer this type of program. How does direct file fit into this market?
So the IRS sees it as an option, as a different way of doing it. If you don't want to pay for advice, they'll offer this for you just like they offer forms for you to fill out. This is just sort of guiding you through the forms is what direct file does, just like TurboTax does. The companies see direct file really as a solution in search of a problem is their line, that they think that the existing universe is perfectly fine, that there's paid products, that there are some free options out there already. And so there isn't really a need for this additional thing created by the government.
Will direct file do all the things that these existing programs already do, like raise so-called red flags or ask specific questions about income, your house, your kids, things like that?
Yeah, it already asks all those questions. It's designed in a question and answer format, just like the private programs are. For its first year, which was this filing season in 24, it was limited to 12 states and limited to certain types of taxpayers. So whereas the existing programs, TurboTax will let you file and let you use it if you have itemized deductions or business income deductions. Direct file in its first iteration was very narrow.
What is Direct File and why is the IRS expanding it now?
And so if you had some of those things, it would just say you're not eligible. Here are some other options. What's going to happen now is the IRS is going to start expanding direct file to cover more types of situations for taxpayers and open it up to all states if they want to pair up with the IRS so that state income tax systems can be linked into direct file.
Will the federal return and the state return be free to fill out?
DirectFile is designed to be free, exactly. DirectFile was free for taxpayers this year. It obviously cost the government money to develop and run it, and that's paid for by all of us. But it was free for taxpayers, and the state ones were free.
So now they're expanding it. How many more people will be able to use it now compared to before?
It's not known. That's one of the big open questions in two dimensions.
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