IRS Direct Filing Tool: The Costs of Complexity


Our tax system can be a means for building and supporting healthy communities, which ultimately supports thriving children. Through distributive methods like tax credits and returns, the tax code houses economic relief for households around the country. Economic empowerment is built through safety nets that may be supplemented by the benefits of tax credits and returns, but only if they are reachable to those most in need. If a household does not, or is unable to, file their tax returns they are left out of transformative social support. People of color were twice as likely as white people to not receive pandemic-era Economic Impact Payments, even though they were eligible because they did not file tax returns.1

Filing tax returns can be a detriment to families that cannot afford the extra expense and complication. Such realities encouraged the IRS to launch the first free, public tax filing tool, the Direct File Tool pilot, in US history. The tool will ease the demands on low-income families and distribute resources more equitably by increasing the accessibility of government services.

Although all Americans are expected to pay and file taxes, the U.S. government has never provided a service to help people reach tax compliance. Considering the process is notoriously difficult and expensive, taxpayers often pay a hefty price to comply with the law. In 2008, the IRS’s taxpayer advocate estimated that these costs, through privately run tax preparation services, amounted to $163 billion each year.2 This cost grew to $209.7 billion in 2022. Not only is it expensive to file taxes, but the tax code is an incredibly long and complicated entity. A 2005 report by a tax research organization put the number of words in the federal tax code at 2.1 million, which had almost tripled since 1975.3

This makes filing taxes an enormous undertaking without private, trained tax assistance. Such complexity is harmful to low-income households while providing an advantage to taxpayers who can afford expensive tax-prep advice. Many households choose to forgo filing entirely, which restricts them from accessing credits. In 2019, 21% of eligible taxpayers did not claim the Earned Income Tax Credit.4 A tool of such magnitude as the IRS Direct Filing tool will eliminate the difficult decisions thrust on families to achieve compliance.  

A simplified filing tool will make an incredibly complex system more manageable for the millions of households that can benefit the most from an abundance of resources. The tool will operate in 13 states in its pilot and is designed to accommodate the tax needs of low-income and middle-income households around the country. By supporting a range of common credits, deductions, and income sources, the tool will help more households reach assistance for which they are eligible. It is an example of how a public good can drive economic justice and enhance the lives of all children and families.

As we continue to consider avenues to economic empowerment that will enable families and communities to nurture thriving children, the IRS Direct File pilot stands out as a shining example of the efficacy of measures that remove obstacles and unburden taxpayers.

  1. Code America: ↩︎
  2. Taxpayer Advocate: ↩︎
  3. Taxpayer Advocate: ↩︎
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December 13, 2023
The Expectations Project

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