IRS extends Free File tax program

The IRS tax filing program that allows citizens to use certain corporate tax filing software for free is being extended through 2029, the agency announced Wednesday.

Participating software companies for 2024 include Tax Act, Online Taxes, Tax Hawk and On-Line Taxes.

“Free File remains an important part of the IRS portfolio to help taxpayers file their taxes for free,” IRS Commissioner Danny Werfel said in a Wednesday statement. “We were pleased to see growth in the program this year.”

Two of the largest corporate tax preparers, H&R Block and Intuit, maker of the popular Turbo Tax software, notably pulled out of the Free File program in 2023 as the tax prep industry faced legal scrutiny for deceptive practices.

Intuit paid $141 million to settle claims it used Free File to siphon low-income customers off the legally required free filing options and onto paid-for services in a class action lawsuit brought by nine different states.

“By requiring consumers to pay for tax-return services that should have been available for free, Intuit cheated taxpayers out of their hard earned money,” Pennsylvania Attorney General Michelle Henry said last year. “Intuit’s deceptive practices and aggressive advertising campaign were unnecessary and illegal; especially when the IRS offers free tax-return services for eligible consumers.”

The IRS offered its own tax-filing software option to taxpayers for the first time this year, a program known as Direct File that was made available in 12 different states and is currently being considered for a possible extension.

Several hundred thousand taxpayers signed up for Direct File accounts, the IRS reported Wednesday, with 140,803 taxpayers filing their taxes with the new system.

The program had limited functionality and was only able to handle wage income as opposed to capital income.

It could only process a handful of commonly used tax credits, such as the child tax credit and earned income tax credit, and it couldn’t process 1099-K forms frequently used by independent contractors and “gig economy” workers.

Wages, salaries and tips are taxed by the IRS at 99 percent efficiency, while proprietor income, capital gains income and pass-through income are all less accurately taxed by the IRS.

The IRS and Treasury are currently looking into scaling the direct file program up in the future, even as Republicans have voted to do away with it altogether.