Over the next several weeks, millions of Americans will sit down to file their taxes, whether on paper, with the help of a CPA, or, as will be the case for most, online through a private company. One of the few issues that nearly every American can agree on is that filing your taxes has become too complicated and too expensive, and we need a better path forward.
Luckily, for nearly three million taxpayers in New York this year, there is a solution. This filing season, the IRS is piloting a Direct File program that would allow eligible taxpayers to file their tax returns online directly and securely with the IRS for free.
Americans spend 1.7 billion hours or $31 billion annually to file their taxes, even though the overwhelming majority have simple tax cases and should be able to file in minutes and for free. Millions more find it too hard or expensive to file taxes at all, and miss out on credits they would have otherwise earned.
For far too long, for-profit tax preparers have taken advantage of our broken tax filing system in order to extract as much profit as possible from vulnerable taxpayers. Our own Attorney General Letitia James spearheaded a $141 million settlement with Intuit, the parent company of TurboTax, that put money back in the pockets of users who were tricked by the company into paying for services marketed as free. More than 176,000 New Yorkers received checks through the settlement, totaling more than $5.4 million.
It’s not just the major preparers like TurboTax that are preying on taxpayers. In New York and across the country, there are a concerning number of smaller, unregulated tax preparers that deliberately target low-income and non-English speaking filers and disproportionately cluster in communities of color.
A study from the Government Accountability Office found that more than half of paid preparers lack credentials and have a significantly higher error rate, leaving customers far more vulnerable to audits. In 2016, New York City’s Department of Consumer Affairs issued violations to two out of five tax preparers in the city for offenses including failing to post prices, misrepresenting their qualifications, and violating other consumer rights.
A free tax filing option would save New Yorkers $150 and nine hours every tax season on average. This is especially transformational for low-income filers, as well as communities of color, who are disproportionately harmed by the complicated tax system.
For example, in 2020 one in five New Yorkers eligible for the Earned Income Tax Credit did not claim it, in part because it was too complicated to file themselves, or because lack of better options caused them to use an unregulated tax preparer.
New Yorkers overwhelmingly want a Direct File tool. Recent polling from the Better IRS campaign and research firm GQR found that 94% of New Yorkers support the IRS providing a free, IRS-run digital tax service. This support holds steady across race, political party, and income, and among both upstate and New York City residents.
Taxpayers across the country also support the choice to file their taxes for free. Recent polling from Hart Research found that 88% of Americans support the Direct File pilot program, and more than 75% of respondents would likely try the free file tool. That’s what this fight is really about: choice. Direct File offers a much-needed alternative for the millions of Americans seeking a free, simplified way to file taxes.
However, the for-profit tax preparation industry and their allies in Congress are pouring billions of dollars and hundreds of hours into limiting taxpayers’ choices, all to protect their own bottom line. Their bad faith arguments against the program fail to hold up, especially considering that the industry has a long and well-documented history of taking advantage of American taxpayers.
In just the past few months, the Federal Trade Commission ordered both TurboTax and H&R Block to stop falsely advertising their services as free. An estimated 87 million taxpayers lose as much as $13 billion of their refunds to tax preparation fees annually because the industry makes it difficult to access the free file system.
New York taxpayers deserve better. Anyone filing in New York can check the Direct File website to see if they are eligible for the pilot program; if the pilot succeeds this year, more and more taxpayers across New York and the country will be able to access this tool in the coming years. Paying taxes is a legal and civic responsibility — the least the government can do is make it easier to file.
Lopez is co-executive director of Make the Road New York.