Most Americans Want to Cut Out the Tax Preparer Middleman

If you’re sick of paying a company every year for the privilege of filing your taxes, you’re not alone.

That’s according to a survey of more than 4,000 taxpayers the IRS conducted in 2022 and published this week. The survey accompanied a report sent to Congress this week on how the tax agency could develop a free online tool that would allow users to electronically prepare and file tax returns.

The majority of tax prep software users said they would switch over to an IRS-run option if one were made available. 

Unlike their counterparts in many countries in the world, U.S. taxpayers have to go through a third party like TurboTax or H&R Block (HRB) if they want to file their taxes online. 

It’s simpler in places like Australia, Spain, Sweden, France, and Norway, where taxpayers can file directly with the tax authorities, starting with forms that have already been filled in with what the government already knows, such as income reported by employers.

As one anonymous taxpayer quoted in the IRS report said: the “IRS already knows your tax information. So why wouldn’t I be able to log in, put in my [SSN], and then half this information is already filled. Then I just need to put in corrections, you know?”

The IRS was directed to create this week’s report under President Joe Biden’s Inflation Reduction Act spending bill. It includes an analysis by an independent consultant of how the IRS might create and maintain such a system—a reform long championed by consumer advocates. 

The tax prep industry, on the other hand, isn’t keen on the idea and has lobbied for years against a government-run preparation and filing system.

“An IRS direct-to-e-file system is redundant and will not be free–not free to build, not free to operate, and not free for taxpayers,” a spokesperson for Intuit (INTU), the maker of TurboTax, said in an email. “A direct-to-IRS e-file system is a solution in search of a problem, and that solution will unnecessarily cost taxpayers billions of dollars.”

And there are other stumbling blocks—less than half of taxpayers said they would use the system if it didn’t file state income tax returns as well, and adding that capability would add another layer of cost and complexity.

Since 2006, Intuit has spent $25.6 million on lobbying against IRS-run electronic free filing, with H&R Block spending $9.6 million, an analysis by Fortune Magazine found last month.

This week’s report is only the latest effort to give U.S. taxpayers a free electronic filing option. The IRS attempted to create an online “Cyberfile” program in 1995 but the effort was plagued by mismanagement and was shut down the year after it launched. 

Currently, about 70% of taxpayers are eligible to file federal taxes for free through tax prep companies via the IRS’s Free-File system, but the IRS said in a 2019 review that the program is too confusing for taxpayers, and less than 3% of eligible taxpayers actually use it.