COMMENTARY | An IRS plan to field a free, government-run online tax filing system will save participants with low incomes billions of dollars and help us close racial disparities in our tax and benefits administration.
Ask just about anyone who’s filed taxes in our country about the experience, and you’re likely to hear that it was, at best, a headache.
Our tax code is difficult to navigate, full of complexity and administrative burdens. It’s also one of our most important systems to support low- and middle-income families, with critical social supports offered in the form of tax credits. But millions miss out on these credits every year because there hasn’t been a free, digital, government-run tax filing tool available to the American public… until now.
The IRS recently announced that, for the first time, American taxpayers will be able to file their tax returns through a free digital service, directly with the government. This is the beginning of a sea change at the agency as it transforms how Americans interact with the tax system and builds the 21st century tax and benefits administration our country deserves.
The IRS unveiled plans to launch this groundbreaking Direct File program that will begin with a scaled pilot in 2024. This is a meaningful milestone in the movement to make government more accessible and equitable for all low income communities across the country. It represents a huge step forward for economic justice and racial equity. The complexity of the current system has disproportionately harmed low income communities and historically marginalized Black and Brown families. Direct File will save tax filers with low incomes billions of dollars and help us close racial disparities in our tax and benefits administration.
Some of these families will choose to continue using paid tax preparation services. Others, however, will now have a free and fair option, which will help them avoid administrative burdens and unnecessary fees. It should come as no surprise that, over the years, people from marginalized communities — Black and Brown families and families with low incomes — have been targeted by deceptive practices that forced them to pay for services that they didn’t need, or should have been free in the first place.
Additionally, there are millions of households every year that do not file taxes at all. The Earned Income Tax Credit has long been our nation’s biggest antipoverty program — but more than one in five eligible families don’t receive it. Who is missing out? According to the IRS’s own research: families with limited English proficiency, indigenous people and households with non-traditional family structures. That is to say, families that disproportionately come from communities of color.
In 2021, the Child Tax Credit was temporarily expanded to become our largest antipoverty program. Who missed out? Once again, Black, indigenous and people of color — or BIPOC — families. Survey data also found families of color — and especially Latinx families — were less likely to report receiving the expanded monthly CTC. As a nation, we have decided to provide critical social supports through the tax code. But as with so many other government programs, these supports are disproportionately failing to reach BIPOC families.
Direct File will help address these disparities, too. We have seen from our own work that simple, easy-to-use, public-interest tax filing software can break down barriers for families who have traditionally been excluded from the tax filing system, and can help bring in families of color who were left out. Streamlining access to the tax system through free, public and increasingly automated tax filing software is how we will finally close the gaps in who is eligible for tax credits and who actually receives them, and ensure that families of color benefit from these critical programs.
Amanda Renteria is the CEO of Code for America — a technology nonprofit that works with community leaders and governments to deliver equitable, accessible digital tools and services — and serves on Treasury’s Advisory Council on Racial Equity.
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