Commercial tax-prep companies lost out on $5 billion in fees thanks to IRS’ direct file, government says

The IRS said Friday that more than 140,000 taxpayers filed their taxes through its new direct file pilot program and participants saved roughly $5.6 million in fees they would have otherwise spent with commercial tax preparation companies.

The government pilot program, rolled out this tax season in 12 states, allows people with very simple W-2s to calculate and submit their returns directly to the IRS for free. Those using the program claimed more than $90 million in refunds, the IRS said.

But despite what IRS and Treasury Department officials said was a successful rollout, they aren’t saying yet whether the program will be available next year for more taxpayers. They say they need to evaluate the data on whether building out the program is feasible.

“We will take time to analyze the data and collect feedback from a wide variety of stakeholders before making a decision about direct file’s future,” IRS Commissioner Daniel Werfel said on a call with reporters.

The program, which became available to the public on March 8, cost roughly $10.5 million for technology and product development and another $2.4 million for customer service, cloud computing and user authentication.

While the Treasury set a goal of reaching 100,000 users for the pilot, 140,803 completed their taxes using the program. More than 3 million people used the IRS’ eligibility tracker to see if they could use the program, and 423,450 people logged into the program.

“Regardless of where it goes from here, I am proud of the success of the direct file pilot,” Werfel said.

The tax season began on Jan. 29, and the filing deadline for most people was April 15.

The program was available to certain taxpayers in Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. Four other states that have a state income tax also were part of the pilot program — Arizona, Massachusetts, California and New York. In those four, state tax agencies helped people directly file their state taxes as well.

According to the latest IRS data, this tax season the agency has received 119.5 million returns, compared with 117.3 million received in the same timeframe last year. Refunds this tax season add up to $220 billion, compared with $215 billion last year.

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