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IRS’s Free Direct Filing Service Pilot to Start in January in 13 States

S.J. Steinhardt
Published Date:
Oct 18, 2023

The IRS will roll out its free tax preparation software as a pilot project in 13 states in January, the agency announced.

The new service, Direct File, will provide taxpayers with the choice to file their federal tax return electronically and directly with the IRS for free.

Arizona, California, Massachusetts and New York will integrate their state taxes into the Direct File pilot for filing season 2024. Taxpayers in nine other 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 join the integration effort for the state's application of the Working Families Tax Credit.

Taxpayer eligibility to participate in the pilot will be limited by the state in which the taxpayer resides, and will also be limited to taxpayers with relatively simple returns, the IRS added.

All states were invited to join the pilot, but not all opted in at this time.

"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 Daniel 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."

In addition to providing the IRS with long-term funding for the agency to transform its operations and improve taxpayer service, enforcement and technology, the Inflation Reduction Act of 2022 also directed the IRS to study the possibility of a free, direct e-file program, which the agency submitted in a report to Congress in May 2023.

Werfel also acknowledged the ongoing nature of the pilot project.

“The Direct Filing pilot is undergoing continuous testing with taxpayers to identify and resolve issues to ensure its user friendly and easy to understand,” he said.“We continue to finalize the pilot details and anticipate more changes before we launch for the 2024 tax season. Direct File, if pursued further after the pilot, would be another option eligible taxpayers have to help them prepare their tax returns in addition to existing options such as the use of a tax professional, tax software, Free File or another option. It's consistent with the IRS mission to make sure taxpayers have available options that work the best for their personal situation."

Currently, the IRS offers a Free File program for taxpayers whose adjusted gross income (AGI) is $73,000 or less. The program is a public-private partnership between the IRS and the tax preparer and filing software companies; these companies provide free online tax preparation and filing for taxpayers who qualify. Seventy percent of taxpayers qualify for this program, but fewer than 3 percent use it, the U.S. Government Accountability Office reported in 2022.

One of the tax preparation software companies that, as Accounting Today reported, withdrew from the Free File program in 2021, Intuit’s Turbotax, objected to the IRS’s announcement.

"The Direct File scheme is wholly redundant and will exclude the vast majority of taxpayers, all of whom can already file their taxes absolutely free of charge today—free for the taxpayer and free for the government," Intuit spokesperson Rick Heinemann said in a statement reported by Accounting Today. "To the tens of millions of restaurant workers, gig economy workers, most retirees, parents who pay childcare expenses, students and more, if you file with Direct File you should be prepared to be audited since you are ineligible and your tax filing will likely be wrong. The Direct File scheme is a solution in search of a problem, and that half-baked solution now has the potential to become a financial nightmare for tens of millions of Americans while unnecessarily costing billions of dollars for something free of charge today."

In May 2022, Intuit agreed to pay $141 million to customers across the United States who "were deceived by misleading promises of free tax-filing services."

The idea of a free e-filing system has been advocated for years by lawmakers including Sens. Elizabeth Warren (D-Mass.) and Thomas Carper (D-Del.), but the system has been opposed by congressional Republicans.

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