A few, actually.
Many of us have come to dread filing our yearly taxes. Not only is it complex, but if you choose to hire an expert to help you navigate the process, it can also be expensive. Luckily, a new government service could make this process easier — and it won’t cost a dime.
The Internal Revenue Service is preparing to launch a free tax piloting program called “Direct File” in 12 states, including Texas and New York. With tax season upon us, it couldn’t come at a better time.
But the free service has already gotten some pushback from Republicans and rival competing services in the private market, including TurboTax maker Intuit. Wondering if you can use it? Here’s a breakdown of whether you qualify and where it’s available.
What is the IRS’s Direct File?
Direct File is a free tax program that was first developed last year by the IRS. While the agency has long toyed with the idea of running its own filing system, $80 million from the Inflation Reduction Act could soon make it a reality for several hundred thousand taxpayers across the country.
Then again, this tool isn’t a first of its kind: The agency previously partnered with eight private companies to create a tax filing program called Free File, which similarly allows people to prepare and e-file their federal income tax returns at no cost. But, according to NPR, only 2 percent of eligible Americans actually use it. That could have to do with the fact that it’s only available to taxpayers who earn $79,000 or less.
How does Direct File work?
You won’t need any fancy software or hard-to-use tech tools to use this complimentary service. Direct File can be accessed in both English and Spanish via smartphone, laptop, and tablet.
Before getting started, you’ll need to first set up an account and verify your identity by using Id.Me, which is a digital identity platform. Once you have that setup, the program will guide taxpayers through the filing process by posing a series of questions about their income and any applicable taxes.
If you moved to a different state or you have a more complex tax situation, the IRS will offer a live chat that connects taxpayers with a representative who can answer basic questions about how to use the service and tax law.
The main caveat is that Direct File only handles federal tax returns — not state ones. But taxpayers in states like Arizona and California who are required to file a state return will be directed to their respective filing systems.
Who can use Direct File?
Direct File will only be initially open to federal and state workers in some states.According to CNN, it could become available to those in the private sector as soon as mid-March.(Tax Day is Monday, April 15.)
Since nothing comes easy, of course, there are some additional eligibility limitations. For instance, some of these employees might not be able to use the program if they make other types of income, such as from a side gig. Taxpayers who choose to itemize their deductions rather than taking the standard deduction also won’t be able to participate. But unlike Free File, there’s no income threshold needed to qualify.
For now, the IRS said it’s limiting the use of the software to work through any initial kinks in the system but added that it plans to gradually roll out the program to more people. “To ensure a good experience for taxpayers, the pilot will launch in phases,” said top U.S. Treasury official Laurel Blatchford.
Where will Direct File be available?
For now, the pilot will only be available to those in select states. These include people who lived in the following states last year: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Why’s it getting pushback
Though the IRS has said its e-file system will be free to taxpayers and easy to use, TurboTax maker Intuit maintained that the tool “is a solution in search of a problem.”
“A government-run tax preparation system is nothing more than a redundant filing system,” the company said in a statement. “Contrary to the study’s assertion, it is a solution that will unnecessarily cost the American taxpayer billions of dollars for something that already exists free of charge.” (In May 2022, Intuit agreed to pay $141 million in restitution in a multistate settlement “for deceiving millions of low-income Americans into paying for tax services that should have been free,” according to New York Attorney General Letitia James’ office.)
Republicans aren’t a fan of Direct File either. The program is part of the $80 million from the Inflation Reduction Act, which conservatives want to cut. Democrats already agreed to rescind $20 billion of the funds last year in an effort to address the debt ceiling.
Luckily, the Biden administration has already stated that this won’t fundamentally prevent the IRS from making some much-needed improvements to its archaic system. In addition to a direct e-file system, this includes digitizing all of its documents, improving its phone service, and giving taxpayers a more detailed outline of when they can expect their tax refunds.
