Senator Elizabeth Warren, D-Mass., Questioning Treasury Secretary Janet Yellen during a Senate Banking, Housing and Urban Affairs Committee hearing on May 10, 2022.
Tom Williams | Reuters
Bill will replace Free Files, allowing ‘free returns’ applications
The Senate bill, called the Tax Return Simplification Act, directs the IRS to create a free, online service that will allow Americans to file their taxes directly with the agency.
Deputies Katie Porter, D-Calif., and Brad Sherman, D-Calif., introduced companion legislation in the House.
Present IRS Free File Program is a public-private alliance with the Free Files Coalition, a nonprofit alliance that includes tax software companies. Although Free Files users start at the IRS site, they are redirected to third-party vendors to complete returns.
Although about 70% of Americans are eligible for IRS Free Filing, only 3% of taxpayers use the service during the 2020 tax season, according to the U.S. Government Accountability Office. report.
Officials at the Free File Alliance did not immediately respond to a request for comment.
“The average American spends 13 hours and $240 a year on taxes – that’s too much time and too much money,” Warren said in Press Release.
The bill also aims to allow eligible taxpayers to opt for a “free return option,” providing a pre-reported tax bill or calculated refund.
It can can automate almost half of tax returns with the information the agency already has, according to a working paper from the National Bureau of Economic Research.
Tax advantage: IRS can’t handle other ‘to-do’ right now
While tax experts welcome the desire to simplify the tax return system, many are skeptical of the Democrats’ latest approach.
“I am all about easy and effective free filing options for taxpayers,” says Kubey. “However, this law piles up additional requirements on an already overwhelmed IRS.”
Dan Herron, a certified financial planner in San Luis Obispo, based in California and CPA with Elemental Wealth Advisors, echoed these concerns, pointing to the burden placed on the IRS through the change. tax laws and additional duties amid the pandemic.
“They don’t need this additional ‘to-do’ right now,” he said. “Let them handle the backlog, then ask them to try to implement this system.”
Let them handle the backlog, then ask them to try to implement the system.
Dan Herron
Principal at Elemental Wealth Advisors
Reported Taxpayer Advocacy Service 21.3 million unprocessed paper returns as of May 31, up from 20 million a year ago, in the mid-year report to Congress.
An IRS spokesman at the end of June said the numbers in the report “are neither the most accurate nor the most recent.”
Filing a non-return may cause missed tax credits
Adam Markowitz, a registered agent and vice president at Howard L Markowitz PA, CPA in Orlando, Florida, notes.
He said problems could include a lack of Earn income tax creditscalculation error child tax creditskip child and dependent care credit and more. NBER report found less than half of tax returns can be pre-populated correctly, with more error potential as itemized deductions increase.
However, despite these challenges, some experts see promise in the proposed legislation.
“I have advocated this kind of system for a long time,” said Brian Streig, CPA of Calhoun, Thomson and Matza LLP in Austin, Texas. “Most taxpayers don’t need a tax professional to file their taxes because the preparation and advice costs more than they save on taxes.”
