An IRS pilot program will let eligible individuals in 13 states electronically file their federal tax returns directly with the IRS for free next year. The IRS Direct File pilot for the 2024 filing season will have strict limits on eligibility, but the IRS anticipates that several hundred thousand taxpayers will participate.
Arizona, California, Massachusetts, and New York have decided to work with the IRS to integrate their state taxes into the Direct File pilot, the IRS said. Taxpayers in nine states without an income tax — Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — may also be eligible to participate.
Washington has also chosen to join the integration effort for the state’s application of the Working Families Tax Credit. All states were invited, but not all were able to join 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,” IRS Commissioner Danny Werfel said in a statement. “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.”
Not all taxpayers in those 13 states will be eligible to participate; the Direct File pilot will be limited to individuals with relatively simple returns. The IRS said it expects the pilot will cover specific income types, such as wages reported on a Form W-2, and taxpayers will be limited to claiming certain tax credits such as the earned income tax credit and the child tax credit.
The 2022 Inflation Reduction Act, P.L. 117-169, directed the IRS to study the possibility of a free, direct e-file program. The pilot is limited in scope so that the IRS can assess customer support and technology needs, the Service said. It will also provide a platform for the IRS to evaluate successful solutions for potential operational challenges identified in the report that the IRS submitted to Congress earlier this year.
As the filing season progresses, more eligible taxpayers will be able to access the service to file their 2023 tax returns.
“We have more work in front of us on this project,” Werfel said. “The Direct File pilot is undergoing continuous testing with taxpayers to identify and resolve issues to ensure it’s user-friendly and easy to understand.”
Direct File will be a mobile-friendly, interview-based service that will work on a mobile phone, laptop, tablet, or desktop computer, the IRS said. The pilot will be available in English and Spanish.
Direct File will cover only individual federal tax returns during the pilot; it will not prepare state returns. However, once a federal return is completed and filed, Direct File will guide taxpayers who want to file a state return to a state-supported tool that taxpayers can use to prepare and file a stand-alone state tax return.
The scope for the pilot is still being finalized and is subject to change, but the IRS currently anticipates it will cover W-2 wage income; Social Security and railroad retirement income; unemployment compensation; and interest of $1,500 or less. In addition to the earned income tax credit and the child tax credit, it also will also allow taxpayers to claim the credit for other dependents. Allowed deductions will include the standard deduction and deductions for student loan interest and educator expenses.
The IRS said it will publicly share the results of the pilot when available. More information will be available at IRS.gov/directfile.