Yellen: Treasury exploring ways to expand free tax filing program

Treasury Secretary Janet Yellen told lawmakers Wednesday that the department is looking into ways to expand on the limited direct file pilot program with possible extensions in functionality and applicable tax credits up for debate.

The free program, which is like a scaled-down version of the popular tax preparation software, has encountered fierce opposition from Republicans and the tax preparation industry, which once maintained a noncompete clause with the IRS specifically forbidding its encroachment into the tax return business.

Testifying before the House Ways and Means Committee Tuesday, Yellen said that direct file could be broadened out to include additional languages beyond English and Spanish and that previously logged wage information could be used to pre-populate returns.

“There are other things that could be incorporated in addition to expanding the kinds of income and deductions that are considered,” she said.

The Treasury is now assessing the costs and benefits of running the program, and the jury is out on whether direct file will be re-upped.

“These are things in the future, if it’s decided to continue with [direct] file,” Yellen said. She described the pilot as “a very successful experiment” while cautioning that the Treasury “hasn’t completely analyzed the information” on it yet.

Democrats have been cheering the program on, eager to count it as a success in the wake of other government services that have had rockier transitions to digital formats, most notably the healthcare.gov launch in 2013 as part of the Affordable Care Act.

“I heard … comments earlier about the success of the Direct File pilot program,” Rep. Judy Chu (D-Calif.) told Yellen Tuesday. “I would have called it a resounding success.”

“It’s pretty clear that Americans are hungry for an efficient free and direct filing option with the IRS,” Rep. Linda Sanchez (D-Calif.) said.

Direct File counted more than 140,000 U.S. taxpayers as users this season, which Treasury said surpassed its goal of 100,000 users though an IRS official said earlier this year they anticipated usage levels in the “several” hundreds of thousands.

Users have been reporting favorable experiences with the software, with 90 percent of respondents to a survey by GSA Touchpoints rating their time with the systems as either “excellent” or “above average.”

The tax preparation industry is not impressed with the $90 million in direct file refunds touted by by the Treasury, arguing that the costs of the program are likely underreported.

“The IRS claims of spending only $24.6 million taxpayer dollars on Direct File are clearly low,” a spokesperson for Intuit, the maker of Turbo Tax, said in a statement.

The direct file pilot is part of an $80 billion operational overhaul currently taking place at the    IRS, enabled by Democrats’ 2022 Inflation Reduction Act. More than half of that amount is going toward increased enforcement targeted at wealthy taxpayers and large corporations.

The Biden administration has floated tax increases for some of the wealthiest U.S. households in its latest set of revenue proposals but has promised to not to increase tax rates or audit rates on people that make less than $400,000 a year.