Read Shannon’s work in The Houston Chronicle.
About 17 million Texans will sit down to file their taxes over the next few weeks, 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 taxes has become too complicated and too expensive, and we need a better path forward.
Many of us have very simple tax situations — no investment properties, no backdoor Roth IRAs, no executive deferred compensation plans. We have a W-2, perhaps a savings account, and we take the standard deduction. That ought to be easy, right? But it’s not.
Americans spend 1.7 billion hours and $31 billion annually to file their taxes, even though the overwhelming majority of us 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.
Luckily, there is a solution for nearly 4 million Texas taxpayers this year. The IRS is piloting a Direct File program this season that allows eligible taxpayers to directly and securely file their tax returns online with the IRS for free.
But wait, you say: Doesn’t free filing already exist?
Only sort of — and not for as many people as it should be. While the IRS has offered a Free File option through partnerships with private companies for several years, only people who made below $79,000 are eligible. Private companies like TurboTax have advertised their services as no-cost — even “$0 to file” — but that wasn’t the case for most taxpayers who used the service, and they didn’t find out until they’d entered their information in the program. In January, the Federal Trade Commission slapped TurboTax for false marketing.
But this new pilot program, Direct File, is a truly free option with no income restrictions. This year’s pilot program limits eligibility to people who are in Texas and 11 other states, and who have relatively straightforward tax returns. But the hope is that the program will expand in the coming years so that anyone can file their taxes for free, directly with the IRS.
Crucially, the program accommodates those who qualify for the Earned Income Tax Credit (EITC) or the Child Tax Credit (CTC). I work for Every Texan, a nonpartisan, equity-focused research and advocacy organization, and we’ve observed an unfortunate reality: Many low-income Texas families miss out on these vital credits each year. Direct File can help these families freely access the tax credits they rightfully deserve.
A free tax filing option would save Texans an average of nine hours and $150 every tax season. These savings are welcome everywhere, but they can be utterly transformative for low-income filers and communities of color, which are disproportionately harmed by the complicated tax system. For example, 1 in 5 families eligible for the EITC do not claim it, because it’s either too complicated to file themselves, or a lack of better options forces families to use an unregulated tax preparer.
In 2023, about 2.5 million Texas workers and families received the EITC, totaling $7.1 billion in tax credits. If Texas taxpayers use Direct File proportionately to our state’s population, altogether we could save another $1.7 billion in filing fees, unclaimed credits and other costs. In credits alone, Texans could claim approximately $739 million more than they do now, with much of that going to low-income families and communities of color. If Congress extends American Rescue Plan policies, like the expanded Child Tax Credit, the benefits could hit as high as $4.3 billion.
Taxpayers across the country overwhelmingly support the choice to file their taxes for free. 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 tool.
Not surprisingly, the for-profit tax preparation industry doesn’t like the idea. To protect their bottom line, they and their allies pouring billions of dollars and hundreds of hours into limiting taxpayers’ choices. Their bad-faith arguments against the program (such as that it’ll hurt Black Americans) fail to hold up, especially considering that the industry has a long and well-documented history of taking advantage of American taxpayers.
This malintent directly contradicts the wide support for choice among Texans across the political spectrum. We all can benefit from a free, simple alternative to commercial tax preparation software, which will only improve with increased usage.
Texas taxpayers who need more assistance than what the new program offers should explore free tax filing assistance alternatives through the IRS’s Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. In Houston, for instance, taxpayers can get one-on-one help by appointment through United Way, University of Houston, and more.
It’s clear the status quo is broken, and taxpayers deserve better. So we urge you to check the Direct File website to see if you’re eligible for the pilot program. Paying taxes is a legal and civic responsibility — but we shouldn’t have to pay a private company in order to pay our government.