Starting next year, millions of eligible taxpayers can submit federal and state taxes at no cost
OAKLAND – California Attorney General Rob Bonta today joined a coalition of 18 attorneys general in submitting a comment letter to U.S. Treasury Secretary Janet Yellen expressing strong support for the Internal Revenue Service’s (IRS) Direct File pilot program. The pilot program will allow eligible taxpayers to file their 2023 federal taxes directly with the IRS for free. Eligible taxpayers in California and three other states — Arizona, Massachusetts, and New York — will also be able to file their 2023 state taxes at no cost using the pilot program. Moreover, eligible taxpayers in nine other states without a state income tax — Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — may be able to take advantage of the pilot program as well. In their letter, the attorneys general write that their “support for an IRS-run alternative is informed both by our belief in consumer choice and our past experience with the tax preparation industry.”
“Next year, thanks to the Biden Administration, millions of taxpayers across the country will be able to submit, free of charge, their federal and state taxes,” said Attorney General Bonta. "This first-of-its-kind pilot program is good for taxpayers and it is good for our state and federal government. My fellow attorneys general and I want to make clear that we fully support the IRS’s efforts. It is important that we continue to do everything in our power to remove barriers to filing, which too often results in families missing out on critical tax benefits like the Earned Income Tax Credit.”
According to the IRS, the Direct File pilot program will initially be limited to taxpayers with “relatively simple returns.” For example, in terms of allowable income reporting under the pilot program, the IRS lists the following: W-2 wage income, social security and railroad retirement income, unemployment compensation, and interest of $1500 or less. In terms of allowable credits, the IRS lists the following: Earned Income Tax Credit, Child Tax Credit, and Credit for Other Dependents. More information on the Direct File pilot program can be found here.
On May 4, 2022, Attorney General Bonta announced, as part of a coalition of 51 attorneys general and with the Los Angeles City Attorney and Santa Clara County Counsel, a $141 million settlement against Intuit. The settlement, which is referenced in the comment letter, resolved allegations that the California-based company deceptively advertised its “free” online TurboTax products. Although 70% of taxpayers qualify for the IRS’s Free File Program — a separate program that is a public-private partnership operated by the IRS, Intuit, and others — less than 3% of taxpayers used it to file their returns in 2020. This abysmal rate was due, at least in part, to tricks and tactics used by Intuit to steer taxpayers away from the IRS Free File Program and to its paid commercial products. A year later, on May 4, 2023, Attorney General Bonta announced that consumers who were tricked by TurboTax’s owner Intuit into paying for free tax services would begin receiving checks related to the settlement.
Signed into law by President Joe Biden on August 22, 2022, the Inflation Reduction Act of 2022 directed the IRS to look into the possibility of creating a free filing option for taxpayers. On May 16, 2023, the IRS submitted a report to Congress explaining that a majority of taxpayers would be interested in using a free IRS-run filing option and that delivering such an option was within the agency’s capabilities.
In submitting the comment letter, Attorney General Bonta joins the attorneys general of Connecticut, Delaware, Hawaii, Illinois, Maine, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Vermont, Washington, and the District of Columbia.
A copy of the comment letter can be found here.