(Bloomberg) — Only a tiny fraction of the number of Americans who could file their taxes for free are actually accessing the no-cost program, according to a new watchdog report.
About 70% of Americans — or those earning less than $73,000 in 2021 — are eligible to file their taxes without cost as part of the IRS’s Free File Alliance with tax-software companies. But only 3% of taxpayers take advantage of it, in part because of a lack of understanding and the dominance of commercial tax-filing software, according to a Government Accountability Office report released Thursday.
“An IRS analysis of the benefits and costs of the Free File program suggested that taxpayer confusion and a lack of awareness about the Free File program may play a role in taxpayers’ use of other filing methods,” the report said. “Taxpayers may confuse Free File with commercial products outside the program. The analysis also noted that commercial products are widely advertised unlike the Free File program.”
The GAO said the low usage rate means the Internal Revenue Service should do more to direct taxpayers to the free service and make it easier for taxpayers to use. The watchdog also recommended the IRS come up with other free-filing options before October 2023, when the current Free File Alliance agreement between the IRS and the software companies is set to expire.
The Free File Alliance has been the subject of both scrutiny and criticism in recent years, following revelations that some participants, including H&R Block Inc., deliberately hid available free filing options and actively steered customers into paid products. Those reports led to pressure from lawmakers for the IRS to review the program and police its private partners better.
Truce Agreement
The two most widely used tax-preparation companies — H&R Block and Intuit Inc., which offers TurboTax — have both left the program since 2020.
The Free File Alliance is somewhat of a truce between the IRS and tax-prep companies, and requires the agency to notify its commercial partners if it plans to develop its own free software.
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