The IRS has launched a new program called Direct File, which allows taxpayers in select states to prepare and file their federal income taxes online directly with the IRS for free. This program aims to make the tax filing process more convenient and accessible for eligible users. Starting Monday, eligible new users can begin filing their returns 24 hours a day, seven days a week. Once final testing concludes, Direct File will be open to all eligible users in the 12 pilot states on March 12.
The pilot program is available in 12 states, including Arizona, California, Florida, Massachusetts, New Hampshire, New York, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, Alaska was originally included on the list but is no longer part of the pilot. The IRS expects several hundred thousand taxpayers across the country to participate in the program.
Eligibility for Direct File is limited to taxpayers with relatively simple returns. The program covers specific income types such as wages on Form W-2, Social Security, unemployment benefits, and interest of $1,500 or less. It also includes tax credits like the Earned Income Tax Credit and the Child Tax Credit. Filers claiming the standard deduction, student loan interest deduction, and tax break for educator expenses are also eligible. However, self-employed individuals or contract workers filing Form Schedule C will not qualify for the program.
The Direct File pilot program is continuously being tested with taxpayers to identify and resolve any issues to ensure it is user-friendly and easy to understand. IRS Commissioner Danny Werfel emphasizes that there is still more work to be done on this project.
Funding for the IRS program comes from the Inflation Reduction Act, which was signed into law by President Biden in 2022. This law allocated $80 billion to the IRS to modernize technology, improve customer service, deliver real-time alerts, enhance customer service, and crack down on tax evasion by the wealthy.
This new program is expected to have a significant impact on taxpayers and the tax preparation industry. Americans collectively spend about $11 billion each year outsourcing their tax preparation services. With the availability of Direct File, taxpayers can now save money by filing their taxes directly with the IRS for free. Additionally, the program aims to streamline the tax filing process and make it more accessible to individuals with simple tax returns.
Overall, the launch of the Direct File program by the IRS marks a significant step towards modernizing tax filing and improving the experience for taxpayers. With its user-friendly interface and accessibility, this program has the potential to revolutionize the way Americans file their taxes. As more eligible users participate in the pilot program, it will be interesting to see how this initiative shapes the future of tax filing in the United States.