IRS extends Free File through 2029

The Internal Revenue Service said Wednesday it will be extending its Free File program through October 2029, allowing free tax software from third-party vendors to remain available, even as the IRS conducted a high-profile test this tax season of its own free tax software in a dozen states and may expand it next year.

The IRS signed a five-year extension agreement with the Free File Inc. consortium of tax prep vendors. Free File experienced an increase of about 200,000 tax returns filed through the program, reaching 2.9 million returns as of May 11, an increase of 7.3% from the 2.7 million filed through the same period last year. That’s far more than the IRS’s own Direct File pilot program, which attracted 140,803 taxpayers, according to the IRS. However, the Direct File program was only available in 12 states and would only work with certain types of income, mainly W-2 income, but not gig economy or investment income reported on 1099 forms. It only supported the standard deduction, not itemizing.

Free File has some limitations as well. Taxpayers needed to have an adjusted gross income of $79,000 or less in 2023, although those with an AGI over $79,000 could use the IRS’s Free File Fillable Forms, which are akin to filling in PDF forms.

Eight private-sector Free File partners provided online tax software this year through Free File: 1040Now, Drake (1040.com), ezTaxReturn.com, FileYourTaxes.com, On-Line Taxes, TaxAct, TaxHawk (FreeTaxUSA) and TaxSlayer. However, the two market leaders Intuit’s TurboTax and H&R Block no longer participate in Free File.

Unlike Direct File, which closed down in mid-April, Free File will remain open through Oct. 15 for taxpayers who filed an extension.

“Free File remains an important part of the IRS portfolio to help taxpayers file their taxes for free,” said IRS Commissioner Danny Werfel in a statement Thursday. “We were pleased to see growth in the program this year, and we look forward to continuing this important collaboration with the tax software industry. Free File was part of a successful filing season at the IRS that saw increased interest in a range of free programs to help taxpayers.”

The IRS also reported an uptick in activity in free tax returns at its Volunteer Income Tax Assistance and Tax Counseling for the Elderly sites, with 2.6 million returns prepared at VITA and TCE sites, an increase of 200,000 returns compared to a year ago.

Source: Michael Cohn
Editor-In-Chief Accounting Today