|
 |
With the opening of tax season this week, it’s a good time to remind Americans that the misery of filing taxes isn’t an accident. It’s a business model, and one that is set to produce a very profitable year. Despite the success of the free, public Direct File program that the Internal Revenue Service (IRS) launched in 2024, the Trump administration chose to kill it, returning the system to companies that profit when the tax code is harder to navigate.
The Tax Filing System Was Designed to Fail Taxpayers
The tax preparation industry is highly concentrated, with over 90 percent of sales in 2021 belonging to just two companies: Intuit (the parent company of TurboTax) and its closest competitor, H&R Block. As of 2025, Intuit alone holds a 60 percent market share for US consumer tax software.
Despite years of lobbying by the tax filing industry, the IRS piloted a free e-filing service in 2024—and it worked. Direct File allowed nearly 300,000 taxpayers in 25 states to file taxes for free in 2025, with 94 percent reporting a positive experience, and more than two-thirds saying it improved their trust in the IRS.
More than a technical fix, Direct File shifted the cost of tax filing away from individuals and back onto a public system, helping to bring down the unusually high taxpayer burden, in both time and money, Americans face.
But Direct File was swiftly killed by the Trump administration. For Intuit and H&R Block, this was good news. In 2024, the first year of Direct File, Intuit reported losing one million users of its free software, though it didn’t publicly attribute any of the decline to Direct File. Just after the November 2024 election, when the (then) newly envisioned Department of Government Efficiency floated the idea of creating its own free tax-filing app, stock prices for Intuit and H&R Block fell.
Before Donald Trump was even inaugurated, the tax prep industry began its lobbying campaign. In December 2024, 29 Republican representatives—who together had received nearly $2 million in career contributions from Intuit, H&R Block, and associated lobbyists and trade groups—sent a letter asking him to immediately eliminate Direct File. Around the same time, Intuit donated $1 million to the inauguration fund.
By November 2025, the IRS had officially suspended Direct File, and it’s not available to filers for the 2026 tax season.
When Complexity Becomes a Profit Strategy
But the end of Direct File isn’t the only reason the consumer tax preparation industry is set for a windfall in 2026. Trump’s budget bill introduced a number of new, complicated provisions that particularly impact low- and middle-income taxpayers, such as deductions for tips, overtime pay, and car loan interest and a new excise tax on remittances.
Complexity appears to be a feature, not a bug, for the companies that sell tax preparation services. The tips and overtime provision, for instance, is confusing and lacks guidance. Because the bill was passed midyear, in many cases neither taxpayers nor their employers have the documents needed to claim the deduction. When combined with the bill’s other regressive elements, the changes will actually leave most tipped workers worse off.
If the goal is to reduce the tax burden on low- and middle-income taxpayers who are paid in tips, there are better ways to do it.
On the other hand, for Intuit and H&R Block, tax code complexity is a bonus. In fact, the CFO of H&R Block called the new tax provisions a “tailwind” for his company, and both companies are already raking in exceptional earnings this year.
Trump’s budget bill introduced a number of new, complicated provisions that particularly impact low- and middle-income taxpayers, such as deductions for tips, overtime pay, and car loan interest and a new excise tax on remittances.
More complicated tax returns mean more clients will be upsold paid services, and, although taxpayers (including those who take the tip or overtime deductions) can sometimes file for free (depending on their income level and tax situation), these companies still use them to make a profit. They aim to convert tax prep clients into year-round financial services clients, and they use the information they glean from tax returns to sell debt products like refund loans and credit cards.
This business model depends on misleading customers, and regulator inquiries appear to confirm it. In 2023, Intuit settled a lawsuit for $141 million after allegedly upselling customers to paid services when they were eligible to file for free. Similarly, in January 2025, the Federal Trade Commission ordered H&R Block to stop making it difficult for customers to downgrade from paid services and to end deceptive advertising practices around which services are “free.”
To cap it all off, their tax-filing software itself is far from reliable. Both TurboTax and H&R Block recently introduced AI chatbots to “help” answer customers’ tax questions, but one reporter found the chatbots gave him the wrong answer more than a quarter of the time. And storefront tax prep businesses like H&R Block appear to target low-income communities with high percentages of nonwhite residents. Studies have found that these businesses employ untrained, unregulated preparers who have high error and fraud rates. This invites the possibility of expensive, stressful audits upon those who can least afford it, on top of the fees these preparers charge that take large chunks out of their refunds.
What Tax Filing Could Look Like Instead
Paying a private company to file your taxes is the norm in the US, but it shouldn’t be.
In other countries, doing taxes is as easy as clicking a button. The IRS could send you a form (or, as they do in Japan, a postcard) saying how much you owe, and you could sign it to file—no intermediary needed.
In fact, a recent study found that 42 to 48 percent of all returns could already be accurately pre-populated by the IRS using just the prior year’s return and the current year’s information return (what your employer, or bank, submits). As anyone who has had a tax return rejected for getting a number wrong knows, it’s frustrating (and bizarre) to learn that the IRS already knew the right answer.
A recent study found that 42 to 48 percent of all returns could already be accurately pre-populated by the IRS using just the prior year’s return and the current year’s information return (what your employer, or bank, submits).
Countries with return-free filing tend to have simpler tax codes than the US, and reforms such as eliminating joint filing and consolidating tax credits would likely be necessary to bring it closer to reality. But as long as return-free filing remains out of reach, there’s another, simpler fix: Direct File. The IRS already succeeded in developing a tool to dramatically reduce the taxpayer burden.
All they need to do is bring it back.
Similarly, the often overlooked Volunteer Income Tax Assistance (VITA) program provides free tax prep services, usually for low- and moderate-income taxpayers, by preparers who are trained and regulated by the IRS. Increasing funding, visibility, and support for VITA would reduce reliance on private tax prep companies.
Instead, the Trump administration has gutted the IRS and handed the tax filing system back to the companies that profit from making you waste time and money filing your taxes.
Fireside Stacks is a weekly newsletter from Roosevelt Forward about progressive politics, policy, and economics. If you enjoyed this installment, consider sharing it with your friends.
 | A guest post by
|
| ||||||||||
