In 2024, the Internal Revenue Service (IRS) is set to launch a no-cost tax filing initiative, which will be piloted in 13 states during the upcoming filing season. This move toward free online tax filing has the potential to reshape the tax-filing process for millions of Americans.
Four states, namely Arizona, California, Massachusetts, and New York, will integrate their state taxes into this system, known as Direct File. Taxpayers in nine additional states without state income tax, which include Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming, may also have the opportunity to participate.
This initial pilot on a limited scale will enable the IRS to assess the expenses, advantages, and operational complexities associated with offering a voluntary Direct File option to taxpayers. The IRS will use the data collected during the pilot to determine how to address challenges for future iterations of the program.
Participation in the pilot will be available to taxpayers with relatively straightforward returns, and eligibility is expected to encompass:
Types of Income: W-2 wage income, social security, railroad retirement income, unemployment compensation, and interest income of $1,500 or less.
Tax Credits: Earned Income Tax Credit, Child Tax Credit, and Credit for Other Dependents.
Deductions: Standard deduction, student loan interest, and educator expenses.
Direct File will be user-friendly on mobile devices, involve an interview-based approach, and be offered in both English and Spanish. It will initially roll out to a select group of eligible taxpayers and will later be expanded. Taxpayers in the 13 eligible states will still have the option to use other tax preparation programs.