Fifteen Years After Shuttering Its Tax-Prep App, Virginia May Be Ready To Compete With TurboTax Again

The Virginia Department of Taxation’s website parts company with the web presences of other  agencies in the commonwealth: It doesn’t offer its own tools to help you complete your primary task there — taxes.

A Resident Individual Income Tax Return form for Virginia residents. (Photo courtesy Virginia Tax)

While you can renew a car registration at the Department of Motor Vehicles site and register an LLC at the State Corporation Commission’s site, Virginia Tax doesn’t let you file your state income taxes online and instead points you to commercial tax-prep services.

That’s not because Virginia Tax hasn’t developed its own filing app. It’s because 15 years ago, the department shelved the iFile app that had already drawn more than 278,000 users in 2009.

In 2010, then-Gov. Bob McDonnell, a Republican, signed a bill patroned by Del. Kathy Byron, R-Lynchburg, which had Virginia retire iFile and cede tax preparation to private providers that would offer  apps for free to lower-income residents – the same proposition the Internal Revenue Service accepted in 2002.

That removed a free option from higher-income taxpayers, with Intuit’s market-leading TurboTax charging a state tax-prep fee that now stands at $64, despite the relative simplicity of the state’s Form 760. Most other commercial tax-prep services charge for state filing, although Cash App Taxes does not.

“We should not have to pay a for-profit company in order to file our taxes easily,” Del. Kathy Tran, D-Fairfax, said after reviewing a constituent’s complaints.

But even taxpayers eligible to use Free File, historically around 70% of total users, have largely ignored it. In 2024, Virginia Tax processed 89,064 Free File individual returns – far fewer than the 4,128,006 total individual returns received electronically or the 446,782 filed on paper.

Electronic returns cost 10 cents each to process and paper ones cost $5.96 each, Heather Cooper, Virginia Tax’s director of communications and training, confirmed in an email.

At the federal level, the IRS has downgraded from the Free File partnership. Pro Publica’s coverage of how Intuit had made its Free File options hard to find online led to the IRS altering its Free File arrangement in 2019 to drop that deal’s prohibition on competing with commercial tax-prep apps, and the IRS has now offered its Direct File app for two tax seasons in a row.

Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, called its popularity among users “remarkable” — 74% of 440 respondents in a survey done after the 2023 tax-year filing season said they preferred it over other filing methods.

“The success of Direct File should be a model for the states,” she said.

Virginia has not been among the 25 states supporting Direct File, but it may now be ready to reverse its own Free File decision — even as the Trump administration appears intent on scrapping Direct File.

Two years after Tran introduced a bill to revive iFile that died in committee, the delegate sponsored a similar bill this year that would also have Virginia join Direct File. That one, with a companion measure sponsored by Sen. Jeremy McPike, D-Prince William, passed the General Assembly only to meet a veto from Republican Gov. Glenn Youngkin.

Youngkin’s veto message cited “uncertainty” about Direct File’s fate and also noted another recent advance towards returning Virginia to online filing: budgetary language requiring Virginia Tax’s next revenue-management system to support “an electronic filing system for individual income tax that can be used by all Virginians.”

Tran suggested that wording in the budget could be enough to accomplish her bill’s goal, depending on how Virginia Tax interprets it.

That interpretation could rely on who the next governor appoints to her cabinet, but the two presumptive candidates, former Democratic congresswoman Abigail Spanberger and Republican Lt. Gov. Winsome Earle Winsome-Sears, have not spoken out on this issue. A query to each campaign’s press office went unanswered.

Intuit questioned the need for a public tax-prep app.

“Free filing options for state tax preparation are already available today,”  spokesperson Tania Mercado said. “Filing federal and state taxes together and linking tax returns allows taxpayers to save time, ensure accuracy, improve privacy and data protection, and reduce the chances of tax refund fraud.”

Opponents of direct filing also question whether public-sector developers would have the same motivations as private-sector counterparts.

“Additionally, the private sector would have an incentive to find as much savings as possible for taxpayers when preparing their taxes,” Americans for Tax Reform said in a 2010 statement commending Virginia joining Free File.

Tran’s reply: Nobody is banning commercial tax apps.

“Having a direct free file way for you to pay your taxes is not a requirement for you to use that option,” Tran said. “That is a decision you as a taxpayer get to make.”

In Maryland, the free iFile tax-prep app the state has offered since 2001 drew relatively few users this year: 39,717 returns out of more than 2.6 million submitted electronically, a little over half of the 76,918 paper returns handled as of early May, officials said.

Almost 6,000 more returns came in via Maryland’s Direct File portal using an interface developed by Code for America,  Robyne McCullough, media relations director at the Maryland comptroller’s office, said by email. When Maryland launched that partnership, officials estimated that almost 700,000 Marylanders would be eligible to use Direct File.

But Maryland taxpayers have that choice, while Virginians do not.

“The thing preventing us from having a high-quality, free public tax preparation system is not technology or logistics, it’s just politics,” said Williamson, the Urban-Brookings Tax Policy Center fellow.

by Rob Pegoraro, Virginia Mercury

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