IRS Direct File could save 850,000 Massachusetts taxpayers $136 million, advocates say

A new Internal Revenue Service Direct File tax filing program could save the average Massachusetts taxpayer nine hours of preparation time and $160, according to U.S. Sen. Elizabeth Warren, D-Massachusetts.

The program would lift what U.S. Rep. Ayanna Pressley, D-7th, called a fundamental burden facing almost every American adult. It’s free, secure and there are no upsells, she said.

The two joined White House National Economic Council Director Lael Brainard in a press call Friday to get the word out to an estimated 850,000 eligible Massachusetts taxpayers that the program was available. Brainard estimated the total savings in filing fees for Massachusetts taxpayers could amount to $136 million dollars annually.

Few who are eligible use the service, advocate says

Tim Hugo, executive director of the Free File Alliance, claims that about 100 million Americans are eligible for the IRS Free File, but only 3% used it last year.

Direct File launched March 12 in 12 states and is estimated to cover roughly one-third of people’s tax situations in participating states, according to government sources. It is a free tax filing program for eligible taxpayers. That eligibility is based on several factors including income amounts and the types of deductions and tax credits claimed.

History of free tax filing

The push for a free government tax filing program dates back to President Ronald Reagan in 1985, Warren said. At the time he called for a "return-free" tax system for taxpayers with simple returns. But big tax preparation companies have spent millions lobbying against the concept, she said.

Several companies offer free tax preparation services, including TurboTax, H&R Block, FreeTax USA, Cash App Taxes, TaxSlayer, and TaxAct. All of them have eligibility requirements. About 36 million people filed their taxes with TurboTax in 2023, and an estimated 10 million people filed with H&R Block, TaxAct, and TaxSlayer, according to Warren.

Is the Direct File program free? Some say no

Tania Mercado, senior communications manager with Intuit, the global financial technology company, said in a Dec. 8 interview that Direct File is not free, that it will cost taxpayers billions. The IRS received $78 billion in Inflation Reduction Act Funds to improve the IRS services, beef up its enforcement and start the free file program.

More than 124 million people have used Intuit’s free tax preparation software in the last decade, she said. Individuals with simple returns earning no more than $73,000 were eligible last year. Mercado said the government is spending money on the program when private companies are already providing the free service.

But ads for free services have not been all they appeared, according to Warren. A ProPublica report in 2023 said the Federal Trade Commission found Intuit tricked millions of Americans into paying to file their taxes when they should have been able to do so for free.

“If a tax company is truly giving it away for free, why would they object,” Warren said.

The Federal Trade Commission is challenging H&R Block on the claim that the company is deleting consumers’ tax data when they downgrade to more affordable online products, according to a Feb. 23 commission press release.

A concern is the collection of personal information, Warren says

Another concern is the personal information collected by the tax preparation companies through Meta pixel and Google tools embedded in their websites, according to an investigation led by Warren and six other lawmakers in 2023.

It’s illegal to release tax information, Warren said.

The Direct File program is available in English and Spanish at https://directfile.irs.gov/. The interview-based service works on smartphones, laptops, tablets and desktop computers.

Denise Coffey writes about business, tourism and issues impacting the Cape's residents and visitors. Contact her at dcoffey@capecodonline.com.

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This article originally appeared on Cape Cod Times: Warren, Pressley urge eligible taxpayers to use IRS Direct File