A Dozen States Involved in IRS Direct File Pilot Program

The IRS is launching its free Direct File pilot program for the 2024 tax filing season (2023 tax returns). The program will initially be limited to a select group of taxpayers in 12 states. But the IRS plans to extend the pilot's availability to more taxpayers in those states by mid-March before 2023 federal tax returns are due. 

If successful, the IRS Direct File program could rival current tax preparation companies, including Intuit TurboTax and H&R Block.

So, who can use the IRS' new pilot program? Here's what you need to know.

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IRS Direct File pilot eligibility

The Direct File pilot program is set to roll out in phases. When the program launches on Jan. 29, 2024, it will only be available to eligible government and state employees in 12 states.

California, New York, Massachusetts, and Arizona have agreed to participate in the IRS’ Direct File pilot program. (Taxpayers participating in the pilot would essentially export their data to a companion tool allowing them to file their state returns.)

Despite not having a personal state income tax, Washington has opted to participate in the pilot by integrating its Working Families Tax Credit application. Eligible taxpayers in the following states would also qualify to participate in the program.

• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Wyoming.

The IRS plans to offer the program to some private sector workers in the above states by mid-march of this year.

For the 2024 pilot, Direct File is not an option for filing all 2023 tax returns.

• You cannot use Direct File if you have gig economy or business income.
• You must take the standard deduction to use Direct File.
• The pilot program is not available for taxpayers who claim the Saver's Credit or the Premium Tax Credit.

Different from IRS Free File

The IRS Direct File pilot isn’t the same as the agency’s existing Free File program. (The IRS Free File Program is a public-private partnership between the IRS and several tax preparation and filing software industry companies.) 

For example, while also free and offered online, IRS Free File is only available to taxpayers with an adjusted gross income (AGI) of $79,000 or less. (Whereas, eligibility for the Direct File program won’t be based on income.) Additionally, with Free File, taxpayers prepare and file their taxes with one of the IRS’ participating partners. Direct File will allow taxpayers to file their federal returns directly with the IRS.

Not everyone supports the IRS's new move into direct tax preparation and filing. A group of Republican Attorneys Generals voiced their opposition to the pilot in a letter to the Treasury Secretary Janet Yellen last month. However, this pushback has not delayed the pilot's launch.

Following the completion of the Direct File pilot, the IRS will evaluate the program's functionality, including the state integration component. The agency has said it plans to publicly share the pilot results.

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