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After weeks of testing with roughly 1,500 returns, Direct File, a free tax filing program from the IRS, is now fully open in 12 pilot states, according to the U.S. Department of the Treasury.
While the pilot focuses on “simple tax situations,” the Treasury estimates the pilot could cover about one-third of tax situations for 19 million taxpayers. The Spanish language version opens later on Tuesday at 1 p.m. ET.
“Dozens of countries have provided free tax options to their citizens for years,” Deputy Secretary of the Treasury Wally Adeyemo 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.”
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Treasury officials hope at least 100,000 taxpayers will participate in the Direct File pilot for 2023 filings as the agency makes future decisions about the program, Adeyemo said.
Within five years, the program could save the average filer $160 per year, or a collective $11 billion annually including tax prep fees and time, according to a report from the Economic Security Project released Monday.
IRS Direct File pilot states
The IRS Direct File pilot states include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming. Alaska was originally included but is no longer part of the pilot.
The soft launch and limited rollout were intentionally designed to capture data to make improvements and decisions for the future, a senior administrative official said.
Direct File pilot doesn’t support state returns, but the software will guide users from Arizona, California, Massachusetts and New York to a state-supported tax-prep tool.
Direct File pilot open to limited filers
You may qualify for Direct File with a simple, straightforward return, with limited types of income, credits and deductions, according to IRS officials.
The pilot will only accept Form W-2 wages, Social Security retirement income, unemployment earnings and interest of $1,500 or less. This excludes filers with contract income reported via Form 1099-NEC, gig economy workers or self-employed filers.
To qualify, you must claim the 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.
Scrutiny of 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.
When asked about Direct File during a House Ways and Means hearing in February, IRS Commissioner Danny Werfel said the agency has “a responsibility and an authority to offer taxpayers different approaches for how to meet their tax obligation.”
Taxpayers have several free filing options this season, including IRS Free File, Volunteer Income Tax Assistance, Tax Counseling for the Elderly and private company software.
The Internal Revenue Service’s free tax-prep platform will soon be open for business.
After slowly increasing capacity on its Direct File platform, the IRS will make the platform available to a wider audience on Monday, the agency said.
The platform is expected to be fully up and running on March 12. The pilot program can only prepare relatively basic tax returns, and it will only be available to eligible taxpayers in 12 states: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington state and Wyoming.
But Direct File marks the widespread debut of a free, government-run answer to mass-market online tax preparation from commercial providers like TurboTax
INTU,
and H&R Block
HRB,
Regulators at the Federal Trade Commission have alleged that both TurboTax and H&R Block misled consumers about the extent of their free tax-preparation services. Both companies deny the allegations.
There are other free tax-filing options out there, including the IRS Free File program. That’s an IRS partnership with tax-software companies available to taxpayers with incomes of up to $79,000.
The IRS Direct File program has no income limits, just like the free tax-prep programs from H&R Block
HRB,
and TurboTax
INTU,
But all three can only be used for certain types of tax returns, mostly simple ones.
The IRS has slowly rolled out Direct File, making it available to taxpayers for certain hours of the day. Starting March 4, it will be available to new users 24 hours a day every day, according to an IRS official.
However, people who want to use the platform should look for a notice at the top of the site saying it’s open. The platform may be temporarily unavailable at times if too many users take up all the available slots for a given day, the official said.
“But more spaces will be added every day, and our goal is to ensure that all taxpayers who are interested and eligible can try out Direct File for themselves,” the IRS official added.
Someone who has already started a tax return can keep working on it even if the site isn’t accepting new users, according to the IRS.
Users in Arizona, California, Massachusetts and New York — the four states on the list with a state income tax — can also be connected to free online preparation of their state returns. Direct File can also help users in Washington state who are eligible for a certain tax credit.
The Direct File program can handle returns with W-2 job wages, common credits like the child tax credit and the student-loan interest deduction. It can’t support returns that need to report capital gains or independent-contractor income.
People who plan to use Direct File should be ready to answer eligibility questions when they log on to the program. IRS officials who designed the platform said they wanted to ask up front to quickly sort out people who cannot use the service.
The IRS began accepting and processing 2023 tax returns on Jan. 29. It has now processed over 44 million returns through late February, agency statistics show. Taxpayers are receiving an average refund of $3,213, which is more than 4% higher than the average amount at the comparable point last year.
Following his conviction on federal fraud charges on Nov. 2, former FTX CEO Sam “SBF” Bankman-Fried will not pursue any post-trial motions.
In a Dec. 1 letter to Judge Lewis Kaplan in United States District Court for the Southern District of New York, lawyers representing Bankman-Fried said they had “decided not to file any post-trial motions” but reserved their rights to pursue claims on appeal. The filing was the latest following SBF’s conviction on Nov. 2 as he awaits sentencing on March 28.
It’s unclear whether prosecutors plan to move forward with Bankman-Fried’s second trial in March. The former FTX CEO’s indictment was split in order for him to face 7 counts in October and 5 charges in March, but following a guilty verdict in November, SBF could already be looking at decades behind bars.
Related: What’s next for the ‘crypto king’ Sam Bankman-Fried?
After the jury verdict was handed down, Bankman-Fried returned to the Brooklyn Metropolitan Detention Center, where he is expected to remain until sentencing. On Nov. 30, crypto blogger Tiffany Fong interviewed a former mob enforcer, Gene Borrello, who reported on some of SBF’s experiences in jail. Borrello claimed another inmate attempted to extort the former FTX CEO.
Bankman-Fried was one of the first high-profile crypto executives to face criminal charges in the United States. Authorities arrested former Celsius CEO Alex Mashinsky in July, and at the time of publication, he remains free on bail until his September 2024 criminal trial. Changpeng Zhao, who stepped down as CEO and pleaded guilty to one felony charge as part of a settlement between U.S. officials and Binance, will be sentenced in February.
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