- The US is moving closer to setting up a free federal tax-filing system.
- A Democratic bill included $15 million for Treasury to study its development.
Filing your taxes could soon be free and relatively painless.
The US is inching closer to modernizing how Americans file their taxes and breaking the grip that private tax prep companies have over the process. In the future, tax-filing may require only a few clicks — or even replying to a text message as in some European countries like Estonia.
Within the Inflation Reduction Act that passed with only Democratic votes last month, $15 million was set aside for the Treasury Department to study a free, federal tax-filing website.
Treasury Secretary Janet Yellen on Thursday expressed support for simplifying the process. "Tax filing should be simple: I recently came across a statistic it takes an average American 13 hours to file a tax return," she said during a visit to an IRS facility in Maryland. "Compare that with Sweden. Some taxpayers can file simply by replying to a text message. We can and must do better."
It's not a new concept. Natasha Sarin, the Treasury's counselor for tax policy and implementation, previously wrote that an adequately funded IRS would mean that Americans could potentially file their taxes at no cost and within minutes, like in similarly developed countries.
A working paper for the National Bureau of Economic Research by researchers from the Treasury Department, Minneapolis Federal Reserve Bank, and Dartmouth College found that autofilling tax returns could be straightforward for many filers, with 41% to 48% of returns able to accurately be pre-populated using information from the previous year's tax returns. They also found that many of the filers who currently pay to have someone do their taxes could easily have them autofilled; 43% to 44% of filers who would see their returns filled out automatically are currently paying to have someone handle them.
However, the IRS still faces many logistical challenges to its existing roles, with both budgets and staffing shrinking over the last two decades — even as the embattled agency assumed new pandemic-era responsibilities like distributing stimulus checks and the child tax credit. That's resulted in a massive backlog of unprocessed tax returns that the IRS is still trying to clear out and pay out refunds to waiting filers, as workers deal with decades-old technology and workplaces stuffed to the brim with paper.
The Inflation Reduction Act will ease some of that pain, with Democrats directing $80 billion towards the IRS. A good chunk of that will go towards tax enforcement on America's ultra-wealthy and large corporations, but customer services and free filing initiatives will still get a nice chunk of the pot.
"There's a real opportunity here for the IRS and then indirectly for taxpayers to have a tax system they can count on more than the existing one," Janet Holtzblatt, a senior fellow at the Tax Policy Center, previously told Insider.