After years of hints and false starts, the Internal Revenue Service will be finally testing a free federal direct tax filing pilot program for select citizens in 13 participating states in 2024. The move marks a major moment in a years’ long path towards offering Americans a no-cost federal filing alternative to third-party services such as Intuit TurboTax and H&R Block—an $11 billion industry that has come under increased Federal Trade Commission scrutiny over allegedly predatory practices, deceptive advertising, and privacy concerns.
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In an October 17 announcement, IRS Commissioner Danny Werfel called the pilot stage a “critical step forward” in testing the “feasibility of providing taxpayers a new option to file their returns for free directly with the IRS.” Warfel added that information and data gathered during the 2024 pilot program will help direct future iterations of the Direct File program, as well as help the IRS assess benefits, costs, and operational challenges.
Residents of Arizona, California, Massachusetts and New York are already confirmed to integrate Direct File into their systems for the 2024 tax season, which begins in December. Meanwhile, Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming “may be eligible to participate” due to their lack of state income taxes. Atop the state-based restrictions, only certain filers will be eligible to participate based on specific types of income, as well as limited credits and adjustments.
In September, the FTC ruled Intuit must stop labeling its products as free unless a stringent set of conditions are “clearly and conspicuously” displayed to consumers. But even without proper labeling, security and privacy concerns have long surrounded the private tax filing industry. In 2022, a major investigation uncovered companies including H&R Block, TaxSlayer, and TaxAct all routinely shared customers’ sensitive financial information with third-party advertisers via the Meta Pixel.
The free code, made available via Facebook’s parent company, marks a tiny pixel on participating websites to subsequently track information regarding people’s digital activity. Roughly one-third of the 80,000 most popular websites online utilize Meta Pixel (PopSci included); the tracking cookie ecosystem provides the majority of many online companies’ revenue streams. Many of the companies profiled by the investigation have since ceased using Meta Pixel for such purposes.
But even using a federal e-file program potential requires supplying personal identification information. In 2022, the IRS announced a new policy requiring US citizens to submit a selfie via the popular, controversial third-party verification service, ID.me, to access their tax information. The IRS walked back the policy plan following an outpouring of public criticism. It is unclear if ID.me will be a mandatory component of the forthcoming Direct File program. The IRS did not respond to PopSci regarding the issue at the time of writing.