Selected taxpayers will get invitations around mid-February, an IRS official said, speaking on the condition of anonymity to discuss the program before Tuesday’s announcement.
If all goes well with those early filers, the official said, the program will gradually open up to more users. By the time of the tax filing deadline in April, the IRS’s goal is that the program will be open to anyone who wants to use it in the 13 eligible states. The IRS said in an email Tuesday that the agency anticipates hundreds of thousands of users.
The design of Direct File reflects IRS polling that found taxpayers are reluctant to use IRS filing software if it doesn’t process federal and state returns alike. So in the first year, Direct File will be open only to taxpayers in the nine states without an income tax, plus four states that agreed to work with the IRS to integrate the IRS software with their state websites for filing tax returns: Arizona, California, Massachusetts and New York.
However, the agency is open to including any state willing to participate and anticipates that more states will join in the coming years if the 2024 filing season is a success and Direct File continues, the official added. There are no eligibility restrictions based on income.
The Direct File software has some limitations: It won’t allow users to itemize deductions — an option more than 10 percent of taxpayers elect — and will allow only certain tax credits and certain forms of income. Anyone who claims a credit for child-care expenses, for example, or who has interest income above $1,500 will not be able to use the free software. An IRS statement on Tuesday did not list self-employment income as one of the types of income likely to be processed by the software, which means gig workers would be left out.
Direct File will process three major tax credits: The Earned Income Credit, the Child Tax Credit, and the Credit for Other Dependents. The software will also allow users to deduct teachers’ expenses and student loan interest. But no other credits or deductions will work with the software in its initial iteration.
Meanwhile, other options remain for those who can’t use the IRS’s new program but still want to file their taxes for free. People with an annual income below $73,000 can get free access to certain commercial tax software through the Free File program, and elderly people and people with an annual income below $60,000 can have volunteers prepare their taxes free, in person or virtually, at Volunteer Income Tax Assistance programs that the IRS supports throughout the country.
And anyone, regardless of income, can always fill out their own tax forms and then submit them for free, either electronically or on paper.
The IRS hopes the Direct File program, which will work in English and Spanish on mobile phones and desktop computers, will provide an easier option open to all — including people who don’t feel comfortable filling out tax forms — by offering simple question-and-answer prompts like users see on TurboTax or other commercial tax preparers. That might be more appealing than the current Free File program, which about 70 percent of Americans are eligible for but only 3 percent use.
