Re-authorizing a Free Tax Filing Service (H.R. 495)

What is H.R. 495?

(Updated November 26, 2017)

This bill authorizes the Secretary of the Treasury to continue implementing the Internal Revenue Service’s Free File program. This is a free program to assist lower income taxpayers with preparing and electronically filing individual income tax statements. It is part of a Congressional goal established by the Internal Revenue Service Restructuring and Reform Act of 1998 to have 80 percent of all individual income tax returns filed electronically.
 

The free filing service is currently provided and operated by private technology firms. This bill stipulates that the IRS and the Secretary of the Treasury will not compete with the private sector by creating, developing and/or distributing free filing services. It would also make the Free File program permanent, ensuring that this arrangement is kept intact year after year.

Argument in favor

This program gives millions of taxpayers a free, simple way to file their income returns, and it saves taxpayers and the government millions of dollars.

Argument opposed

This arrangement prevents the IRS from developing other electronic tax-filing services that make filing taxes easier for citizens.

Impact

People who pay taxes, the Secretary of the Treasury, the Internal Revenue Service, private tax preparation/filing companies, tax-filing software.

Cost of H.R. 495

A CBO cost estimate is not available.

Additional Info

Of Note:

The Free File program was created in 2002 as an arrangement between the IRS and private tax software companies. Its main goal is to give all taxpayers access to software that helps them organize and file their individual income returns.

Software companies like Intuit claim that this partnership has helped the majority of taxpayers to file their taxes for free. But according to the Treasury Department, only 3.5 million people used Free File services last year. The rest rely on programs like Turbotax, which cost around $50 to use. This creates enormous profits for companies like Intuit, which runs Turbotax, as the IRS has agreed to not develop any additional free tax preparation software to compete with them.

Opponents of this bill argue that this monopoly wastes taxpayers’ money and time. Congressmen like Rep. Bill Foster (D-IL) have championed legislation to create a “return-free filing” option. This would allow taxpayers to receive a tax return that has been automatically filled in by employers and government entities, which would significantly cut down on the time that goes into preparing forms.

Tax-service software lobbyists like Grover Norquist object to return-free filing, warning that it gives too much power to the IRS and will increase the number of filing errors. But its supporters note that return-free filing is already working in California and several European countries, and that it will help reduce the billions of hours and millions of dollars wasted each year on tax preparation.

Media:

Sponsoring Rep. Peter Roskam (R-IL) Press Release

Consumerist