IRS Introduces Direct File Program in 12 Pilot States with No Fee

Tax season is here, and the IRS has launched a new pilot program called Direct File to allow taxpayers to file their taxes for free directly with the agency. The program, which has been tested with roughly 1,500 returns, is now fully open in 12 pilot states.

According to the U.S. Department of the Treasury, the Direct File pilot focuses on “simple tax situations” and could cover about one-third of tax situations for 19 million taxpayers. The program is also available in Spanish, with the Spanish language version opening later on Tuesday at 1 p.m. ET.

Deputy Secretary of the Treasury Wally Adeyemo emphasized the importance of providing free tax options to American taxpayers, noting that other countries have been offering similar programs for years. The Treasury hopes to have at least 100,000 taxpayers participate in the Direct File pilot for 2023 filings as they make future decisions about the program.

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The program is expected to save the average filer $160 per year, with a collective savings of $11 billion annually when considering tax prep fees and time, according to a report from the Economic Security Project.

The Direct File pilot states include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming. Although Alaska was originally part of the pilot, it is no longer included.

To qualify for Direct File, taxpayers must have a simple, straightforward return with limited types of income, credits, and deductions. The program only accepts certain types of income, including Form W-2 wages, Social Security retirement income, unemployment earnings, and interest of $1,500 or less. Filers with contract income reported via Form 1099-NEC, gig economy workers, and self-employed individuals are not eligible.

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Additionally, Direct File only accepts a few credits and deductions, such as the earned income tax credit, child tax credit, credit for other dependents, student loan interest deduction, and educator expenses deduction. Taxpayers must also claim the standard deduction to qualify.

The launch of the Direct File pilot has faced scrutiny from the private tax filing industry and some Republicans, who have questioned the agency’s authority to create the program. Despite this, IRS Commissioner Danny Werfel has defended the program, stating that the agency has a responsibility to offer taxpayers different approaches for meeting their tax obligations.

Overall, taxpayers have several free filing options this season, including IRS Free File, Volunteer Income Tax Assistance, Tax Counseling for the Elderly, and private company software. The Direct File pilot aims to provide a convenient and cost-effective option for taxpayers, potentially saving them time and money in the long run.

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