Understanding IRS Direct File: Who Could Benefit This Tax Season?

NEW YORK CITY - The IRS recently released a new program that is going to allow taxpayers to file their tax returns online in 12 pilot states.

IRS Direct File is an online tax-prep tool that is going to allow taxpayers free tax filing. While the pilot focuses on "simple tax situations," the U.S. The Department of the Treasury estimates the pilot could cover about one-third of tax situations for 19 million taxpayers, according to a report by CNBC.

A Spanish version of IRS Direct File will also be available this week.

"Dozens of countries have provided free tax filing options to their citizens for years," Deputy Secretary of the Department of Treasury Wally Ademayo said during a press call on Monday. "American taxpayers who want to file their taxes for free directly with the IRS should have that option."

With tax season well underway, and its April 15 deadline fast approaching, here's what you should know about the IRS Direct File program.

What is the IRS Direct File?

Direct File is a new tax-prep tool to file your federal income taxes directly with the IRS. The pilot currently supports simple tax needs, and it is considered free, accurate and secure, according to the IRS.

Direct File walks you through the process of preparing your return. You'll follow a step-by-step checklist that guides you through filing and helps you easily track your progress. When you finish, Direct File shows you a clear summary of your 2023 federal income tax based on the information you entered.

What tax situations can be covered through IRS Direct File?

The pilot will only accept Form W-2 wages, Social Security retirement income, unemployment earnings and interest of $1,500 or less. This excludes taxpayers with income reported via Form 1099-NEC, gig economy workers or self-employed filers.

Who's eligible for IRS Direct File?

To access the program, you must be living in one of the twelve pilot states, as well as claim standard deduction, which is $13,850 for single filers and $27,700 for married couples filing jointly for 2023.

Direct File only accepts a few credits: the earned income tax credit, child tax credit and credit for other dependents. The software also accepts deductions for student loan interest and educator expenses.

Which are the twelve pilot states in which IRS Direct File is launching?

Certain taxpayers in the following states may be eligible to file through IRS Direct File:

• Florida
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming
• Arizona
• Massachusetts
• California
• New york

Direct File pilot only supports federal income tax returns, but the software will guide users from Arizona, California, Massachusetts and New York to a state-supported tax-prep tool.

Why has there been pushback against IRS Direct File?

The Direct File pilot launch comes amid pushback from the private tax filing industry. There has also been scrutiny from some Republicans who have questioned the agency's authority to create the program, CNBC reports.

Taxpayers have several free tax filing options this season, including IRS Free File, Volunteer Income Tax Assistance, Tax Counseling for the Elderly and private company software.

The bottom line

Taxpayers now have free filing options for their federal income tax returns. While the IRS Direct File is still in its early stages, the program can be beneficial for taxpayers looking for new options to file their taxes.

"This is a milestone," said IRS Commissioner Daniel Werfel during a press conference last week. "Direct File marks the first time you can electronically file a tax return directly with the IRS. And you can't beat the price— it's free."

For more information on Direct File, click here.