TurboTax Under Threat as Thousands Use Alternative Way to File Taxes

Thousands of people are eligible to use the new free Internal Revenue Service (IRS) tax filing system this year, according to a Treasury Department spokesperson, and other tax services may be at risk for losing customers, but Intuit tells Newsweek it might be the taxpayers who are at risk.

The IRS is launching a pilot plan, known as Direct File, that will offer a free way to submit taxes for U.S. workers. In December, the agency published its plans for an in-house filing system that taxpayers can use to submit their federal tax returns at no cost. The system is available to use for eligible American taxpayers beginning in mid-March.

What to know about Direct File

According to a report by Vox, Treasury spokesperson Ashley Schapitl said 19 million taxpayers will be eligible to use Direct File this tax season, with "at least several hundred thousand" expected to participate. Newsweek has contacted The Treasury Department for verification via email outside of normal working hours.

The introduction of Direct File has irked private tax filing companies like TurboTaxand Intuit, which have pushed back against the pilot. In May 2023, the TurboTax said in a statement: "Adding a government-run tax filing solution will not offer any improvement over filing options currently available to and used by taxpayers, nor do we believe it will have a material impact on the industry or our financial results."

A May 2023 feasibility report by the IRS found that three-quarters of taxpayers would be interested in a free tax filing system provided by the Revenue Service. But, Intuit said in a statement that the feasibility report ignores "facts, common sense, and what we know from our decades of helping millions of Americans file their taxes."

An Intuit spokesperson told Newsweek on Thursday: "Direct File is not free tax preparation, but rather a thinly veiled scheme where billions of taxpayer dollars will be unnecessarily used to pay for something already completely free of charge today."

The spokesperson said that all Americans "regardless of their income level or tax complexity" are currently able to file their tax returns free of charge. Newsweek has been unable to verify this claim at this time. "Whether people are simple filers like those eligible for Direct File, or complex filers with gig work and investments that Direct File excludes, there is a filing option available today so every American can easily and accurately file their taxes with confidence," they continued.

According to Bloomberg, in 2022, 42 million people used TurboTax to file tax returns, with 13 million not having to pay for services. While TurboTax does offer free services, it has previously been ordered to pay 4.4 million customers after it emerged the company had tricked consumers into paying for tax services that should have come at no cost.

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Intuit has claimed that American taxpayers "don't want the tax collector, assessor, auditor, and enforcer also to be their tax preparer." According to the IRS report, this rings true for a portion of Americans. It found that some taxpayers they interviewed said they would not opt for a government-run tax filing system as they had issues with the IRS being the tax administrator, with one person surveyed saying they "felt safer going through a third party" and that the IRS is "intimidating".

The IRS has also been keen to point out that Direct File is not mandatory, and is simply another option for those filing tax returns. "No one is required to use Direct File, and it does not replace any of the existing options for filing," the IRS said in a release on its website.

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Is Direct File Available Now?

Right now, whether or not Direct File is available to you depends on where you live. Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington state and Wyoming are all part of the pilot—but not everyone in these states will be able to use it just yet. Direct File is currently only suitable for those making simple tax returns this season.

"This is a critical step forward for this innovative effort that will test the feasibility of providing taxpayers a new option to file their returns for free directly with the IRS," IRS Commissioner Danny Werfel said in October 2023.