The IRS is introducing a new pilot service called Direct File, enabling Americans to submit their tax returns free of charge without relying on third-party services. This initiative eliminates the need for popular tax return platforms like TurboTax and H&R Block, which often require payment. The program, unveiled in November 2023, allows eligible participants to file their 2023 taxes this year directly with the IRS.
The Direct File pilot program, being fee-free, has the potential to save individuals hundreds of dollars annually. As per a 2021 study by the National Society of Accountants, the average cost for preparing Form 1040 with Schedule A, itemizing personal deductions, and a state income tax return was $323. Financed by the Inflation Reduction Act of 2022, which allocated $80 billion to overhaul the IRS, this pilot service is accessible in both English and Spanish through desktop and smart devices.
IRS Commissioner Danny Werfel supports 2024 pilot for direct file program
IRS Commissioner Danny Werfel expressed enthusiasm about this innovative effort, calling it a significant step forward. He emphasized that the limited pilot for 2024 will involve close collaboration with participating states, testing the integration of state processes. This collaborative effort aims to gather crucial insights for shaping the future direction of the Direct File program.
While the initial rollout will be limited to uncomplicated tax returns within specific states, the IRS expects that the knowledge gained from the trial will play a pivotal role in extending the service to a nationwide availability.
Who qualifies for direct file?
The pilot program is not available to all taxpayers at this stage, as it is not yet implemented in all 50 states. However, residents of Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State, and Wyoming can currently participate in the program. It’s worth noting that the majority of these states do not levy state-level income taxes.
Yet, for the four states that do impose state-level income taxes—Arizona, California, Massachusetts, and New York—participants will be directed to a state-endorsed tool for submitting their state tax returns, as clarified by the IRS.
As per the IRS, the Direct File program is designed to handle the following:
Earnings:
- W-2 income
- Social Security and railroad retirement
- Unemployment benefit income
- Interest up to $1,500
Allowances:
- Earned income tax credit
- Child tax credit
- Credit for other dependents
Write-offs:
- Standard deduction
- Student loan interest deduction
- Educator expenses
However, the IRS notes that, at this stage, the pilot program is not tailored for individuals with “gig economy” or business income.