The leadup to Tax Day is always an anxious time, perhaps this year more than ever. This week, the House passed the Taxpayer First Act. The bill is being heavily supported by TurboTax maker Intuit and H&R Block and would make it illegal for the IRS to offer Americans its own free tax filing service. The bill’s movement through Congress comes at the same time as many taxpayers are realizing the consequences of President Donald Trump’s tax overhaul in the form of Tax Cuts and Jobs Act, which was signed into law in December 2017. If the Taxpayer First Act is passed, these two pieces of legislation could create a perfect storm of obstacles for taxpayers in years to come: They’re both confusing and they’re both corporate-friendly.
As it stands, options like TurboTax and H&R Block are available to some consumers for free, but as anyone who’s been through these systems knows, the free programs focus on upselling users on their more capable, fully featured iterations. Currently, the IRS allows people to file for free via its Free File Alliance tool, but taxpayers have to make less than $66,000 to use it. (And, as pointed out by Digg, many people don’t even know it’s available to them.) The Taxpayer First Act, which is expected to pass in the Senate, would likely make this the only option and give the companies lobbying for its passage even more control than they already have. “This bill eliminates potential competition. And when competition is eliminated in a free market economy, the tendency is the remaining players [can] charge whatever the market will bear,” New York tax attorney Joseph Callahan told me via email. “Just look at the price gouging that often goes on in the pharmaceutical industry as an example.”
As predicted, Trump’s adjustments largely benefit the upper class and corporations and hurt middle- and lower-class taxpayers. In fact, many people from lower brackets got a bill this year instead of a refund: A recent NerdWallet survey found that one out of five people owed money after filing their taxes this year, and that 32 percent of them received a refund after filing their 2017 taxes. The survey also revealed that using tax software or hiring someone to help with taxes is on the rise, possibly because the dramatic change in tax law caused confusion. “The number of people who use tax software or hire a tax preparer seems highly likely to continue growing, if for no other reason than doing our taxes isn’t really getting any easier,” NerdWallet tax specialist Andrea Coombes said via email. “The Tax Cuts and Jobs Act ushered in the most significant changes in the federal tax code in more than 30 years, so it’s no surprise that Americans might be looking for ways to simplify the process for themselves.”
Coombes says that free versions of tax filing software are designed to be those simple solutions. But TurboTax’s free version, for example, doesn’t support itemized deductions or some above-the-line deductions, so if someone qualifies for such tax breaks, then it’s worth it to pay for premium TurboTax products. (For what it’s worth, TurboTax’s free version told me I owed thousands this year, while its pay-for option netted me a return. Suffice it to say the pay-for version is much clearer and easier to use.) “Generally, when you pay for premium services, you’re also paying for peace of mind and a little more guidance,” Coombes says.
More major tax code adjustments and more taxpayer confusion are good for TurboTax and its ilk. In an April blog post from NerdWallet, Coombes said, “The 2019 tax season has been marked by more uncertainty than most. Both because of the government shutdown and changes from the Tax Cuts and Jobs Act.” Callahan points out that the bill is likely to pass as politicians on both sides of the aisle have accepted campaign contributions from Intuit and H&R Block, and that the Senate’s approval of the Tax Cuts and Jobs Act seems indicative of the current climate. “Call me jaded, but after watching the same Republican-controlled Senate pass a tax bill that gave away the store to big business, I’m not expecting it to start acting differently now,” he said. It seems likely that the pending legislation will make filing next year—and in years to come—even less taxpayer-friendly.
