IRS Launches Pilot Program for Free Online Tax-Filing Service, Focusing on User Experience and Simplification

Last month, the Internal Revenue Service (IRS) made headlines by announcing the launch of a pilot program for a free direct online tax-filing service. This initiative was part of the IRS’s response to a mandate in the Inflation Reduction Act of 2022, which aimed to improve taxpayer services and simplify the tax-filing process.

The IRS has invested several months in studying the feasibility of an IRS-operated free direct e-file tax return system. The agency aims to enhance taxpayer experience by providing tools, information, and assistance to make it easier for individuals to comply with their tax obligations. The IRS reported that most taxpayers surveyed expressed interest in using an IRS-provided tool to prepare and file their taxes. The agency aims to implement this service for select taxpayers starting from the 2024 tax filing season.

Streamlining the taxpayer experience is crucial, as the IRS revealed that Americans spend a significant amount of time on record-keeping, gathering tax materials, and filling out their taxes. These activities account for approximately 71% of the federal paperwork burden annually. On average, individual taxpayers spend around eight hours and $140 preparing their taxes each year, including associated forms and schedules for non-business income.

To improve the system, experts suggest incorporating accessible and equitable digital identity verification without causing friction for tax filers. Jordan Burris, Vice President for Public Sector Strategy at Socure, emphasized the importance of simplifying the access to technology and minimizing wait times. Delays in processes such as refunds and filing can erode taxpayers’ trust in the system.

Identity verification has been a challenge for the IRS, with concerns raised over biometrics and difficulties faced by certain populations, including Gen Z consumers, who lack credit cards or mortgages. Burris highlighted alternative markers that can be used for identity verification, leveraging data analytics to verify identities outside of the traditional credit ecosystem. By adopting this approach, Socure has achieved significant improvements in verifying identities, even for 18-year-olds opening their first accounts.

The IRS already utilizes data analytics to identify potentially fraudulent tax returns and protect taxpayers. However, transparency regarding data collection and security is essential to address taxpayers’ concerns. By analyzing specific data patterns, the IRS can detect anomalies and potential fraud more efficiently.

To simplify the tax-filing process, the IRS should aim to keep taxpayers on its website rather than redirecting them to other sites. Studies have shown that when customers are rerouted from a website, they are more likely to abandon their efforts. Providing options for resolving difficulties without requiring in-person visits would also be beneficial, ensuring that taxpayers can easily verify their identity and access the necessary resources.

Building a user-friendly tax filing system requires foresight and careful consideration of potential challenges. The success of a free direct e-file tax return system hinges on an efficient, frictionless experience for taxpayers from start to finish. As the IRS continues to develop and refine its online tax-filing services, prioritizing user experience and simplification will be key to achieving its goals of improved taxpayer services and compliance.