The House just passed a bill that could ban the IRS from creating a 'free' tax-preparation software like TurboTax - here's what it means for you
- The House on Tuesday passed the Taxpayer First Act, which includes notable changes to the tax code and Internal Revenue Service (IRS).
- In the bill is a provision which would enshrine the current version of the IRS' Free File service and prevent the agency from creating its own tax-preparation service.
- While it shouldn't make a big difference for most taxpayers, the bigger effect is what Americans could be missing out on.
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The House on Tuesday passed a bill designed to make some major changes to the way the Internal Revenue Service (IRS) operates, but it also means that American taxpayers could be missing out on a huge opportunity.
The bill, named the Taxpayer First Act, is aimed at updating many major IRS systems and improve Americans' interactions with the agency.
But the bill also includes a provision that would codify the IRS's current "Free File" system, which allows most Americans to file for free, but only through private services. Critics of the bill say that it would make it so that the IRS would be unable to create it's own, free alternative to existing tax-preparation software like Intuit's TurboTax or H&R Block's software.
The bill was supported by a bipartisan group of lawmakers, many of whom received campaign donations from Intuit and H&R Block. A similar bill exists in the Senate and would need to pass before the changes could take place.
Senate sponsors of the bill disputed the characterization that the provision would prevent the IRS from creating a fling service, but legal experts and advocacy groups argue that the language would block the agency. Additionally, the IRS already has a memorandum of understanding with some tax preparers not to create a free filing system.
But while there is some back and forth on the exact effects of the provision, it can be hard to discern just what it means for the average taxpayer.
So what could the Taxpayer First Act mean for your tax filing? Here's a breakdown of how this will effect you:
- If you qualify for free filing now, you can still file for free: As the system currently stands, Americans in the 70th percentile or below are allowed to file for free. That means, this year, people making $66,000 or less in 2018 can file free taxes.
Even if the bill becomes law, people below the threshold can still access a number of services through the IRS's Free File landing page that allow you to file for free. Different services have different thresholds to qualify for free filing with TurboTax offering the service to people making $34,000 or less, TaxAct offering it for people making $55,000 or less, and H&R Block offering it for people making $66,000 or less.
But it is important to note that these are not IRS products, rather the websites listed are privately-owned services that allow people below their respective thresholds to file for free. - If you already use a private tax service and are above the free filing threshold: Tax preparation companies and services already in place will continue to operate as they have. Some companies offer free federal filing services for simple returns and other deals; those will still be available at the discretion of the respective companies.
But what is more important is what Americans are missing out on
While most of the tax preparation landscape will not change because of the bill, the real issue critics have with the measure is the reforms that the bill forgoes.
For one thing, advocates argue that the Taxpayer First Act would prevent the IRS from creating a tax-preparation software to compete or replace private software. According to ProPublica, those of you hoping that you could get rid of TurboTax or H&R Block anytime soon will be sorely disappointed by the bill since it codified the existing Free File program, which relies on the private services and prevents the IRS from creating a competitor.
Additionally, the new bill does nothing to simplify the tax-preparation system.
Advocates of simpler tax-filing measures have maintained that the IRS could provide most Americans with simpler, pre-filled tax forms that would use data the agency already possesses. In theory, this would require most Americans to make, at most, minor adjustments to the forms in order to file.
But companies like Intuit have argued that such a system would result in more overpays by taxpayers and other tax analysts have warned that it would cause complications and reduce transparency.
Regardless of the possible ease or hazards, the IRS has so far been blocked from implementing the system - which already exists in countries like Sweden and Spain. The new bill would ensure that the system stays that way.