State tax preparation would be free for most filers under bill heard in House

Individual income tax returns are due Monday, so perhaps you’ve recently used such tax preparation software as TurboTax or H&R Block.

What if the state did the same thing for free?

It could under HF4830, sponsored by Rep. Aisha Gomez (DFL-Mpls). A new direct free filing system would contain enough Minnesota tax forms and schedules that 70% of the state’s individual income taxpayers would be able to use it by 2026, when they’d be filing for tax year 2025.

On Thursday, the bill was laid over, as amended, by the House Taxes Committee for possible inclusion in this year’s tax bill.

“A number of states already have their own in-house direct file systems,” Gomez said. “Most people’s tax forms are very, very simple. Putting together a system that serves those folks and doesn’t drive them to a product that costs something is what we’re trying to do with this bill.”

The nonpartisan Legislative Budget Office estimates implementing the new system would cost $2 million in fiscal year 2025 and $5.3 million in the next biennium, money that would come from a special revenue fund account set aside for tax filing modernization. It also estimated it would require about 7.5 full-time-equivalent employees in fiscal year 2025 and around 18 in the next biennium.

Gomez said the system would also protect the taxpayer data in a way private companies don’t.

“These for-profit companies are in a situation in which they’re offering free filing to people who meet income limits,” Gomez said. “But they’re doing what for-profit tech companies do, which is taking your data. … The integrity of our tax system depends on the ironclad data protections that are associated with the information that’s on the tax form. If you talk to the IRS or our Department of Revenue, that is job one.”

In creating the system, the bill would permit the Department of Revenue to contract with software vendors, but none that already plan to offer paid tax preparation services while the system is active.

Rep. Patti Anderson (R-Dellwood) asked if tax filers would still have to either do their federal taxes on their own or use private tax preparation software if they aren’t under the income limits required for free federal filing. Gomez said they would, but that the state would be better positioned to participate in a possible expansion of the federal free filing program.

“This seems rushed,” said Rep. Kristin Robbins (R-Maple Grove). “Does the department really think that they can get this together by tax year 2025?”

Gomez said there’s a specific software at the root of other states’ free filing systems that she believes could be quickly adapted to the state’s needs.