The IRS has recently launched its Direct File program, a free tax filing service available in 12 pilot states after extensive testing with approximately 1,500 returns. The U.S. Department of the Treasury announced that this program, focusing on ‘simple tax situations,’ could potentially cover one-third of tax situations for nearly 19 million taxpayers. The Spanish language version of this program is set to open at 1 p.m. ET on Tuesday.
Deputy Secretary of the Treasury Wally Adeyemo emphasized the importance of providing American taxpayers with the option to file their taxes for free directly with the IRS during a press call. He pointed out that many other countries have been offering free tax options to their citizens for years.
The Treasury is hopeful that at least 100,000 taxpayers will participate in the Direct File pilot for 2023 filings, which will help inform future decisions about the program’s expansion. According to a report by the Economic Security Project, this program could potentially save the average filer $160 per year within five years, amounting to a collective $11 billion annually when factoring in tax preparation fees and time.
The states participating in the IRS Direct File pilot program include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming. Alaska was initially part of the pilot but has since been excluded from the program.
To qualify for the Direct File pilot, taxpayers must have a simple and straightforward return with limited types of income, credits, and deductions. The program only accepts Form W-2 wages, Social Security retirement income, unemployment earnings, and interest of $1,500 or less. It does not cater to individuals with contract income reported via Form 1099-NEC, gig economy workers, or self-employed filers.
Participants must also claim the standard deduction, which amounts to $13,850 for single filers and $27,700 for married couples filing jointly in 2023. The Direct File program supports a few select credits, including the earned income tax credit (EITC), child tax credit, and credit for other dependents, as well as deductions for student loan interest and educator expenses.
The launch of the Direct File pilot program has faced some criticism from the private tax filing industry, showing reluctance to embrace this free alternative provided by the IRS.