For its inaugural season, this “Direct File” software will initially be accessible in 13 states and won’t cater to all taxpayers, as per the recent IRS announcement. An exclusive invitation will be required if you’re keen to be among its early users. The IRS remains receptive to other states joining this initiative, anticipating more will come onboard if Direct File’s 2024 debut season flourishes.
By mid-February, a select group of taxpayers will receive invites, shared an anonymous IRS representative. If this early phase proves successful, the intent is to expand its user base. By April’s tax submission deadline, the aim is for Direct File to be accessible to any interested individual within the 13 designated states. The IRS expects its user count to run into hundreds of thousands.
IRS Direct File’s Features, Limitations, and Potential Impact on the 2024 Tax Season
The structure of Direct File is grounded in IRS surveys indicating taxpayer hesitation towards any IRS software that doesn’t handle both federal and state returns. Consequently, in its first year, Direct File will cater to nine states with no income tax and four additional states (Arizona, California, Massachusetts, New York) that have collaborated with the IRS on a combined tax return platform.
Direct File does come with certain confines: It doesn’t support itemized deductions, a choice preferred by over 10% of taxpayers, and is compatible with specific tax credits and income types. For instance, those claiming childcare credit or with interest earnings surpassing $1,500 won’t be eligible to use this free tool. Additionally, gig workers, like freelancers, seem unlikely to benefit as self-employment income wasn’t mentioned as an accepted income type.
However, Direct File will accommodate major tax credits like the Earned Income Credit, Child Tax Credit, and the Credit for Other Dependents. Deductions for educators’ costs and student loan interests are also supported, but other deductions aren’t compatible in this primary version.
For those ineligible for Direct File but still seeking cost-free tax filing solutions, options persist. Those earning below $73,000 annually can leverage certain commercial tax software via the Free File program. Additionally, seniors and individuals with an income under $60,000 can utilize Volunteer Income Tax Assistance programs for free tax preparations, both in-person and online.
Everyone has the option of manually completing their tax documents and submitting them without charges, either digitally or physically.
The IRS envisions that Direct File, available in English and Spanish for both mobile and desktop, will simplify the process for all – especially those apprehensive about manual form-filling. With its user-friendly, Q&A format resembling TurboTax, it could potentially outshine the current Free File program, which is used by a mere 3% of its eligible 70% American user base.