The IRS is rolling out its new free-filing option for residents of 12 states, starting this year, The New York Times reported.
The new service, Direct File, was announced in October. It will provide taxpayers who meet certain eligibility requirements with the choice to file their federal tax return electronically and directly with the IRS for free. According to the Times, the pilot program will be open to low- and moderate-income taxpayers with simple returns.
Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming are participating. Most of those states do not tax income at the state level, but the four that do—Arizona, California, Massachusetts and New York—will integrate their state taxes into the Direct File pilot for filing season 2024.
“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,” Commissioner Danny Werfel said at the time of the announcement.
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.
Tania Mercado, a spokesperson for Intuit’s Turbotax—one of the tax preparation software companies that withdrew from the Free File program in 2021—criticized the direct-file project as a “half-baked solution” and a waste of taxpayer money. “The direct-file scheme is a solution in search of a problem,” she told The Times.
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 Times noted that congressional Democrats mostly support free direct filing, while Republicans argue that the program would give the IRS even more power over ordinary taxpayers.
In online summaries, the IRS has said that to make sure the pilot works well, it will initially be opened to “a small group of taxpayers” during the 2024 filing season, the Times reported. As the season progresses, “more and more” eligible taxpayers will be able to use the service. The IRS said it would promote the filing option in part through its network of grass-roots and community partners, such as the Volunteer Income Tax Assistance (VITA) program. The IRS will issue a public report on the pilot before deciding if the direct filing system should be opened to more taxpayers.
“It’s exciting this is happening,” said Gabriel Zucker, associate policy director for tax benefits at Code for America, a nonprofit organization that builds digital tools to help taxpayers get access to government services, told the Times.
In New York, Direct File users will be able to share their federal information with the filing tool built by Code for America, Gov. Kathy Hochul announced in October. According to the announcement, "Code for America will prepare most of the state return using the federal return data, and most taxpayers will have to answer no more than a few simple questions to complete their New York tax return."