US Congress moves to ban free tax filing software

US lawmakers are planning to pass a bill to prevent the Internal Revenue Service (IRS) from developing a free electronic tax filing system to help US taxpayers file digitally

The move by the US Congress comes just before 15 April, which marks Tax Day in the US, the deadline to submit individual tax returns.

Currently, most US citizens use commercial software to file their return, but those on low incomes earning under $66,000 (£50,370) can use Free File, a free tax software provided by a consortium of industry-leading tax software companies called the Free File Alliance. 

This option is currently used by only 3% of eligible US taxpayers every year, despite estimates suggesting up to 70% of Americans qualify to do so. There are claims that the members of the consortium do not promote the free software and are more likely to try and upsell one of their paid-for products to taxpayers.

The IRS is under a pledge to ‘not compete with the consortium in providing free, online tax return preparation and filing services to taxpayers’.

However, it has indicated previously that it would create a similar, free software package which would enable US citizens to file digitally, in much the same way as HMRC’s Making Tax Digital proposals for income tax.

Now a new bill, the Taxpayers First Act, includes a provision which would specifically ban such a development, a move which has the backing of the major commercial tax software suppliers who have lobbied heavily for such a prohibition.

The legislation has backing from both Republican and Democrat and has passed a vote at the House Ways and Means Committee, meaning it has moved an important step closer to becoming law.

Taxpayers First Act

Report by Pat Sweet

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