Data: Americans Waste Billions to File Tax Returns

Elizabeth Renter
By Elizabeth Renter 
Edited by Kathy Hinson

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There is a legitimate IRS program that’s designed to allow 70% of taxpayers to file their federal income tax returns for free using online software. But hundreds of millions fail to take advantage, potentially overspending by billions, according to the latest IRS data.

The Free File program began 20 years ago to create a way for the lowest earners to file their federal taxes using free online software. Each year, the income threshold for eligibility is adjusted so that each year, 70% qualify. For instance, for tax year 2023 (those we’re preparing to file now), people with adjusted gross incomes of $79,000 or less qualify to use Free File.

An examination of 2022 IRS data, the most recent available, reveals that despite 70% qualifying, just 2.2% actually took advantage of the program.

Share of taxpayers using Free File declined in 2022

Just under 3.3 million federal taxpayers used Free File in fiscal year 2022. But 102 million didn’t, despite being qualified.

In 2020 and 2021, the share of Free File users had increased over previous years — to 2.8% and 3.1%, respectively. That increase could’ve been due in part to the very public push to get filers and nonfilers alike on record and eligible for Economic Impact Payments as part of COVID-19 pandemic relief. The tool created to help facilitate the delivery of those payments was built in cooperation with the Free File program. But that progress nearly faded away by 2022.

Overall taxpayer knowledge about the program appears low. A survey conducted in conjunction with the NerdWallet 2024 Tax Report found just 13% of Americans know if they qualify for the Free File program, and a 2020 survey from the Treasury Inspector General for Tax Administration found that 30% of people who paid to file their taxes were unaware of Free File altogether.

So, how much are taxpayers overspending? It’s tough to say, but a conservative estimate assuming a $40 fee per return would amount to $4 billion.

Online tax prep, where 'free' can be misleading

In January, the Federal Trade Commission found Intuit Inc., the maker of TurboTax, engaged in deceptive practices when advertising free tax software. Only after users went through a fairly lengthy process of online form filling would TurboTax disclose whether they could file for free. Many could not and were then steered toward paid products. The FTC now prohibits the company from advertising services as free unless they are, in fact, free for everyone or it discloses the percentage who will qualify before the user begins. Intuit called the FTC decision flawed and said it will appeal.

At the writing of this article, TurboTax now advertises on its “Free Edition” landing page that “~37% of filers qualify.” That, however, is roughly half of the 70% of all tax filers that qualify for IRS Free File.

The FTC ruling against TurboTax isn’t the first criticism a tax software company has faced about their “free” software. In 2020, the New York State Department of Financial Services ruled that several tax software providers engaged in deceptive practices by steering would-be free filers into paid products.

At the time, these providers were members of the Free File Alliance, the name given to the group of online tax software companies authorized by the IRS to provide Free File services via the IRS website. But in the wake of the New York DFS investigation, ProPublica reporting and the 2020 Treasury Inspector survey, the IRS tightened its regulations and oversight of these companies. Ultimately, some companies left the Free File Alliance, including TurboTax and H&R Block.

Where to find the real Free File

The IRS provides a tool that will point you to several appropriate Free File providers, given your responses to a brief set (roughly five minutes worth) of questions. Not all Free File providers are right for everyone; they can set their own income and age requirements, so the IRS matches you appropriately and will indicate if a provider allows free state filing, too. Accessing these providers directly through the IRS helps ensure you’re not landing on a page that appears to offer free tax filing but pulls a switcheroo.

The IRS is also offering free tax filing through Direct File for eligible taxpayers in 12 states this year. Direct File doesn’t have income limitations like Free File but isn’t available for more complex filing needs. If you aren’t eligible for Free File and live in Arizona, California, Florida, Massachusetts, New Hampshire, New York, Nevada, South Dakota, Tennessee, Texas, Washington or Wyoming, this option could be for you. The agency expects to roll Direct File out in stages with wide availability across the eligible states by mid-March.


The number of Americans who qualify to use IRS Free File but do not was determined using the 2022 IRS Data Book to determine the number of individual returns filed in the Oct. 1, 2021, through Sept. 30, 2022, fiscal year, and the difference between 70% of those returns and the sum of those who used Free File. While the 70% guideline applies to the share of filers who should be able to use Free File in a filing year, the fiscal year data is a proxy for these more precise (but unavailable) numbers.

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