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Despite recent IRS improvements, filing taxes is still a hassle

Tax season is upon us, and through the years, some argue the complicated process is maintained that way on purpose.
Posted at 8:10 PM, Feb 23, 2023

This year, taxes are due on Tuesday, April 18.

Regardless of whether a person files early or waits for the last minute, doing taxes can be a whole day of work.

The Internal Revenue Service estimates it takes the average non-business filer nine hours to prepare their tax return, with an average non-business tax prep costing $160.

The IRS usually has all of the information you file; it knows how much you owe, but it doesn't tell you. The current tax filing system puts it on you to match its numbers. 

It's part of a cycle driven mostly by the lobbying of large tax preparing services. 

ProPublica's reporting revealed tax preparing companies have spent millions lobbying Congress to avoid simplifying the tax code and tax filing so that everyday people filing their taxes will throw their hands up in frustration and pay for their services.

At the same time, anti-tax advocates — primarily conservative groups who want to fuel opposition to taxation — have pushed hard to defund the government, specifically the IRS, and elect lawmakers who will do that and keep people angry at the tax system.

An underfunded IRS struggles to fulfill its duties, especially when the tax code keeps getting more complicated.

So for the time being, America is stuck in the clutches of a system that drives a lot of people to pay for tax prep services. 

So what does an easy and free solution look like?

The IRS has a system called Free File available on its website and open to any person or family who earns $73,000 or less. The agency estimates Free File is available to about 70% of tax filers, but the actual usage rate is pretty low.

In 2020, IRS data showed more than 148 million individual income tax returns were filed online. Of that 148 million, just over 4 million, or less than 3%, actually used Free File.

While the IRS can let you submit for free, getting outside help to understand the bevy of forms you need can be pricier. That's built into software like TurboTax, but the IRS can't offer similar services because of the agreement it struck with tax preppers when it created Free File in the early 2000s.

How likely are you to be audited this tax season?

How likely are you to be audited this tax season?

Lawmakers in Washington recently allocated billions of dollars in taxpayer money to the IRS to increase the number of audits across the country.

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The IRS has a list of providers that offer free tax prep help if you meet certain qualifications, but the system is full of obstacles. Plus, each site has its own specific set of requirements.

Providers may try to funnel you into paid programs or force you into one if you get certain tax credits. If you try to find help yourself using a search engine, you might find services that are similar to the Free File program but actually are not, and that can even stump the experts.

Beverly Moran is a professor emerita of tax law at Vanderbilt University. She has written six books and dozens of articles on the tax system. She puts her expertise to work, helping people file their taxes in order to find issues with the process. Even she found herself dealing with an impostor.

"I went on one of these sites that was not through the IRS website but appeared to be through the IRS website," Moran said. "I went all the way through, filled out the return and then was told that I owed $29. Well, that's ridiculous. So I called the company and they said, 'Oh, well, the person that you were doing this return for is eligible for the earned income credit.' And any time there's a credit, this program requires a payment. And it seems to me that virtually anyone who is eligible for that software, for that free software, was going to be eligible for the earned income tax credit, so they all would have had to pay."

The earned income tax credit is a government benefit for lower income people that is delivered through the tax code. Estimates show 1 in 5 workers eligible for it don't even file for it. This was last year for a 2021 tax return, which meant there was another big benefit the first provider had overlooked.

"When I finally got to the IRS website and I found another provider within the IRS website, I realized that the original provider that had wanted to charge had dropped a $1,400 credit," Moran said.

Another potential solution to the problem is return-free filing. The government would calculate your taxes using all of your W-2s and tax forms; then you could either accept the result or provide proof that you should pay less or get back more.

California piloted its own version of this approach to favorable reviews from tax filers. Joe Bankman, a Stanford Law professor, helped create the system. 

Inflation could impact your tax return this year

Inflation could impact your tax return this year

According to a survey by NerdWallet, most Americans are unaware of how inflation will impact their tax returns.

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"They know what your wages are because your employer already reported it to them," Bankman said. "So in California, we took that information and we sent a pilot group a completed return, and we also made it available online. And we said, 'Based on what we know and on what you reported last year about your household status, how many kids you have and so on — here's what we think your return will look like. If this is right, hit correct, submit.'"

But it didn't last long. California Republicans alleged, among other criticisms, the software could cost taxpayers money if it didn't always maximize deductions. Plus, Intuit – the maker of TurboTax, which is based in California – spent over a million dollars lobbying lawmakers as Ready Return was getting off the ground. 

Bankman fought back, pouring in $35,000 of his own money to counter-lobby state legislators to promote the return-free system. He's also advocated for it to members of Congress.

"When I went to California to try to fight into it I thought, 'Well, there's only 120 legislators. I'll talk to them all one-on-one.' And I found that in order to do it, I had to hire a lobbyist because I just couldn't handle the details or get the meetings," Bankman said. "In Congress when I went there, now there's 500-plus. And what I found everywhere I went is that Intuit had already preceded me. They'd already met every representative I was going to meet."

So the current system lives on, but this year, a new stream of funding is making it easier for people to get help from the IRS.

The IRS received money in the Inflation Reduction Act that Congress passed last year to bolster its phone support service. It allowed the agency to purchase new technology and hire 5,000 more employees to answer the calls of confusion.

A 2022 report found only about 10% of calls to the IRS made it to an actual IRS employee, a trend that had been consistent the past couple of years. But this year, a Treasury Department source told the Washington Post the response rate through Feb. 4 had soared to 88.6%.

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Tax season has begun. Here's how to prepare, avoid a refund delay

A tax expert says there are three valuable lessons to keep in mind when filing taxes this year after recent IRS changes.

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