The Internal Revenue Service (IRS) has revealed fresh details about a limited test program called “Direct File,” which will allow select taxpayers to prepare and submit their federal income tax returns online directly to the IRS at no cost. This pilot program will become available to eligible taxpayers in 13 states in 2024, with invitations being extended to qualifying individuals. The IRS plans to release more information on this initiative in the coming months.
According to current estimates, the IRS anticipates the participation of several hundred thousand taxpayers across the country in this pilot program, which is exclusively intended for individuals and does not encompass businesses in 2024. For instance, taxpayers who file a Schedule C will not be eligible for participation.
IRS Commissioner Danny Werfel emphasized that not every taxpayer will be able to take advantage of this opportunity during a press briefing held on Tuesday.
So, which states are set to participate in the IRS Direct File testing program?
Direct File is designed to be a user-friendly, interview-based service that can be accessed via mobile phones, laptops, tablets, or desktop computers. It will be available in both English and Spanish.
Taxpayers in nine states that lack a state income tax (Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) may qualify for the pilot program for their federal returns, as per an announcement from the IRS.
In addition, Arizona, California, Massachusetts, and New York have agreed to collaborate with the IRS in the Direct File pilot program for the 2024 filing season, integrating their state taxes into this initiative.
To ensure the program’s effectiveness, Direct File will initially be introduced to a small group of eligible taxpayers in the 2024 filing season. As the season progresses, more qualifying taxpayers will gain access to the service to file their 2023 tax returns.
While all states were invited to participate in the pilot, some states felt that they did not have sufficient time to prepare for the 2024 filing season. However, more states are likely to participate in 2025 if the program is extended next year. States that will not partake in the pilot include Illinois, Indiana, Kentucky, Michigan, Ohio, and Wisconsin, among others.
The objective behind this IRS pilot program is to evaluate its feasibility and address operational challenges. This assessment will help determine whether a full-scale Direct File project can move forward.
But why is the IRS conducting this new program?
The Inflation Reduction Act, signed into law by President Joe Biden in August 2022, mandated that the IRS conduct a feasibility study to explore the development and implementation of a free, direct electronic filing tax system accessible to all consumers.
The IRS will assess the ease of navigation within the system, the quality of customer service provided, and the level of interest from taxpayers in participating in a Direct File program run by the IRS.
The test program will primarily focus on tax returns with a limited scope, which may include those containing W-2 wage income, unemployment compensation, Social Security and railroad retirement income, and interest earnings of $1,500 or less.
Tax returns that claim specific credits, such as the earned income tax credit, the child tax credit, and credit for other dependents, are also expected to be eligible for participation.
It’s crucial to note that Direct File is intended to be just one option for taxpayers and will not replace other alternatives, such as working with a tax professional, utilizing the Free File system on IRS.gov, seeking assistance from free preparation sites staffed by trained volunteers, or using commercial tax software.
While paper returns will still be accepted, the IRS encourages electronic filing for faster processing and refunds.
