Tax Byte
IRS to Launch Free Direct File Pilot During 2024 Tax Filing Season
The IRS announced today that it will launch a test run of its free Direct File program during the 2024 tax filing season. The Direct File pilot will be limited in scope but will allow eligible taxpayers to file their 2023 federal tax return for free, directly with the IRS. Currently, the IRS expects eligible taxpayers in 13 states to be able to participate in the pilot.
Under the Inflation Reduction Act (IRA) (P.L. 117-169), the IRS was directed to study the feasibility of an IRS-run free direct e-file tax return system (Direct File) and submit its findings to Congress. Last May, the IRS did just that in its 106-page IRS Report to Congress – Inflation Reduction Act §10301(1)(B), in which it detailed its assessment that such a program would be beneficial for taxpayers yet not without obstacles.
IRS Direct File Eligibility
The IRS intends to test the integration of state tax obligations with its Direct File program. Although all states were invited, Arizona, California, Massachusetts and New York chose to work with the IRS to integrate their state taxes into the Direct File pilot for the 2024 tax filing season, according to the IRS. These states entered into separate Memorandums of Understanding for partnership purposes on the IRS’s Direct File pilot, thus only taxpayers with state tax obligations in those states will be eligible.
And taxpayers in the nine states without an income tax – Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming – may also be eligible to participate in the pilot. Washington will work with the IRS’s pilot for purposes of the state’s application of the Working Families Tax Credit.
Notably, the Direct File pilot will only cover individual federal tax returns and will not prepare state tax returns. However, the Direct File program will guide taxpayers who want to file a state return to a state-supported tool that taxpayers can use to prepare and file a stand-alone state tax return, according to the IRS.
Currently, the IRS anticipates the general tax scope of the Direct File pilot to 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
“We have more work in front of us on this project,” IRS Commissioner Danny Werfel said. “The Direct File pilot is undergoing continuous testing with taxpayers to identify and resolve issues to ensure its user friendly and easy to understand. We continue to finalize the pilot details and anticipate more changes before we launch for the 2024 tax season.”
Is Direct File Here to Stay?
The notion of an IRS-run free e-file program has turned somewhat partisan on Capitol Hill, and even tax professionals seem to have mixed views. Notably, Werfel alluded to the possibility that the Direct File program may not be pursued further after the pilot. Whether any such outcome is an issue of functionality or legal authority, however, remains to be seen. Certain congressional Republicans continue to oppose the program and question the IRS’s statutory authority for being both a tax administrator and return preparer.
Legality aside, what say you, Tax Pros?
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