The IRS tried something different in 2024. They started a program called “Direct File” which allowed folks with very simple tax returns (W-2s only for the most part with adjusted gross income under $79,000) to use this new IRS system. The system does compute Earned Income Credit and child tax credit.
Basically, the IRS hired 3rd party tax software vendors to file these tax returns for FREE to certain qualified taxpayers. In the background, the IRS paid private software vendors, so actually, all the rest of the US taxpayers paid for this. Vendors such as “1040Now”; “Drake”; “ezTaxReturn”; FileYourTaxes”; “On-Line Taxes”; “TaxAct”; “TaxHawk”; and “TaxSlayer” were used.
For the 2024 tax season (filing 2023 tax returns), this pilot program was used by about 140,000 taxpayers in 12 different states during a 5-week time period. Those taxpayers claimed over $90 million in refunds.
Here is the absolute hoot about how government thinks. They claim it saved those 140,000 taxpayers about $5.6 million in professional tax preparation fees they normally would have paid to have their tax returns filed. It actually cost the IRS $31.8 million to implement this program. So far, in government’s way of thinking, they spent $31.8 million to save a small group from paying $5.6 million. My little brain can not see the “savings” here. Hopefully, the IRS will take what it has learned, expand it to a much larger scale and help a lot of folks. But there is NO WAY they will be able to make it a cost-effective process. It will always cost the IRS more to do this program than if they made everybody go out and pay a 3rd party service to file their returns.
Isn’t it interesting that there always seems to be a bunch of folks who take advantage of something new and use the confusion to trick folks into giving up money? IRS went after some software vendors who deceptively used similar sounding names to entice taxpayers to sign up for their service, ending up paying something to the software vendor, thus not really being “free.”
The IRS has announced that in 2025 tax filing season (filing 2024 returns), this Direct File program will now be available to anybody who qualifies.
One benefit to the IRS, it pretty much guarantees that anybody who files with Direct File will not be audited. Thus, shrinking the pool of remaining taxpayers subject to the risk of getting audited by the IRS. This helps the IRS be more efficient buy focusing on more complex tax returns. That’s good news unless you happen to be one of those folks who have more complex tax returns.
Have you heard? Psalm 73:5 says, “They are free from burdens of men, neither are they plagued like other men.”
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