The way Americans file their taxes is about to change if the IRS implements a government-run e-filing system.
On Tuesday (August 16), when President Joe Biden signed the Inflation Reduction Act into law, the Internal Revenue Service received $80 billion in funding, $15 million of which would be to deliver a report on a free, government-run tax e-filing system.
Despite most of the $80 billion set to be released over the next decade, the report has a tighter deadline, with the agency required to turn in the report in one year.
As part of the report, the IRS will have to determine how much such an e-filing system would cost, what the design of the system would be, and how taxpayers would feel about using such a system.
According to tax experts, the e-filing system could take one of two forms. The first is a limited option, which would be a government-standardized system similar to software from companies like TaxACT, H&R Block, and Intuit.
The second, more comprehensive option could include return-free filing.
Many countries with advanced economies in the Organization for Economic Cooperation and Development have adopted the latter option, an option that would have the government do your taxes for you and withhold what is owed based on its calculations.
The more comprehensive model also has tax authorities withholding tax payments throughout the year.
In a 2003 report on this type of system, the Treasury Department found that in countries implementing a return-free system, “taxpayers meet their tax obligations entirely through tax withholding payments made throughout the year.”
