INDIANA – The Internal Revenue Service (IRS) has offered a Free File program for middle to low-income tax filers through partnerships with private tax preparers for two decades, but a Government Accountability Office (GAO) report found only 3% of taxpayers use it, even though 70% are eligible.
The IRS recently announced that next year it will launch a new free tax filing program – Direct File. Direct File differs from Free File in that it’s directly run by the IRS instead of by private companies, and it doesn’t have an income restriction.
“This is a critical step forward for this innovative effort that will test the feasibility of providing taxpayers a new option to file their returns for free directly with the IRS,” said IRS Commissioner Danny Werfel. “In this limited pilot for 2024, we’ll be working closely with the states that have agreed to participate in an important test run of the state integration. This will help us gather important information about the future direction of the Direct File program.”
Taxpayer eligibility to participate in the pilot will be limited by the state in which the taxpayer resides and will be limited to taxpayers with certain types of income, credits, and deductions – taxpayers with relatively simple returns. The IRS today announced it anticipates specific income types, such as wages on a Form W-2, and important tax credits, like the Earned Income Tax Credit and the Child Tax Credit, will be covered by the Direct File pilot.
IRS Direct File will allow people to electronically file their federal taxes for free, directly through the IRS, the agency says. However, it is only being offered to a limited number of tax filers in 2024. This allows the agency to test the program before launching it nationwide.
Direct File will allow people to prepare and file their federal tax returns. The program will not prepare state tax returns, but it will be designed to lead people to a state-supported tool that taxpayers can use to prepare and file their tax return if they have one, the IRS says. Many private tax preparation companies allow taxpayers to prepare and file both their federal and state tax returns together.
The new IRS Direct File program will not be available to everyone in 2024. Only some taxpayers in 13 states will be eligible while the IRS tests the program in its pilot year.
People in those 13 states may be eligible to participate in the 2024 Direct File pilot, a new service that will provide taxpayers with the choice to electronically file their federal tax return directly with the IRS for free.
All states with a state income tax were given the option to participate in the Direct File pilot and partner with the IRS to integrate their state tax returns into this system. Four states opted to participate, and another nine states don’t have a state income tax at all, meaning taxpayers in 13 states are eligible to use Direct File at its launch.
Direct File differs from Free File because the latter relies on participating online private tax preparation companies to prepare and file federal returns, the IRS says. Direct File will be operated and maintained by the IRS.
Additionally, the preexisting Free File program is available only to people with an annual gross income lower than $73,000. The IRS has not implemented any income restrictions on who can use Direct File.
The 13 states where qualifying taxpayers will have access to Direct File next year are:
- Alaska
- Arizona
- California
- Florida
- Massachusetts
- New Hampshire
- New York
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
People eligible for Direct File can still use other filing options, such as tax professionals and tax preparation companies. The preexisting IRS Free File program will also still be available for all qualified taxpayers.
The IRS has noted that the scope of the pilot “is subject to change.”
Direct File pilot basics
Eligible taxpayers may choose to participate in the pilot next year to file their tax year 2023 federal tax return for free, directly with the IRS.
Direct File will be a mobile-friendly, interview-based service that will work as well on a mobile phone as it does on a laptop, tablet or desktop computer. The service will be available in English and Spanish for the pilot.
The Direct File pilot will be a limited, phased pilot. It will not be available to all eligible taxpayers when the IRS begins accepting tax returns. Because the IRS wants to make sure the program works effectively, Direct File will first be introduced to a small group of eligible taxpayers in filing season 2024. As the filing season progresses, more and more eligible taxpayers will be able to access the service to file their 2023 tax returns.
Direct File does not replace existing filing options like tax professionals, Free File, free return preparation sites, commercial software, and authorized e-file providers. Taxpayers will continue to have choices, whether they want to use a tax professional, a software product, Free File, free tax preparation services like Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) as well as a paper tax return or Direct File.
Taxpayers participating in the pilot will have access to help from IRS employees staffing the Direct File customer support function. IRS customer service representatives will provide technical support and provide basic clarification of tax law related to the tax scope of Direct File. Questions related to issues other than Direct File will be routed to other IRS customer support, as appropriate.
2024 Direct File pilot eligibility expected to cover key income, tax credits
Eligibility to participate in the 2024 pilot will be limited to reporting only certain types of income and claiming limited credits and adjustments. The tax scope for the pilot is still being finalized and is subject to change, but the IRS currently anticipates it will include:
Income reporting
- W-2 wage income
- Social Security and railroad retirement income
- Unemployment compensation
- Interest of $1,500 or less
Credits
- Earned Income Tax Credit
- Child Tax Credit
- Credit for Other Dependents
Deductions
- Standard deduction
- Student loan interest
- Educator expenses
