On Monday, the IRS began accepting 2023 tax returns, marking the beginning of the 2024 tax season. The agency is also quietly launching a new Direct-File tax filing program that could soon be available to millions of U.S. taxpayers. While the program's initial phase is limited to pre-selected taxpayers, you can find out now if you're eligible to use the software once it's available to eligible taxpayers in 12 states.
The Inflation Control Act of 2022 required the IRS to study the cost and feasibility of building and operating its own free online tax filing system. After reporting its findings to Congress in May 2023, the agency began the free software development process. His IRS demonstration for journalists took place on Thursday, January 25th, and the Direct File System went live on Monday, January 29th.
Here's everything we know about how the new IRS free tax preparation software works, including how to find out if you're eligible. For more information about the 2024 tax season, see why it's usually best to file your taxes as soon as possible and how to track your tax refund in your bank account.
What is IRS Direct File?
Direct File is the name of the new free tax filing system the IRS is launching for the 2024 tax season (or at least part of it). Taxpayers who use Direct File answer questions similar to those in popular tax software such as TurboTax or H&R Block, and the software uses the answers provided to create a tax return that can be filed electronically on the IRS website. Complete your tax return.
Which taxpayers can file their income tax returns using IRS Direct File?
Direct File's 2024 pilot program will include taxpayers in 12 states: Arizona, California, Florida, Massachusetts, New Hampshire, New York, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Residents of these states must have income in another state to participate.
In addition to geographic limitations, the Direct File program only processes tax returns from taxpayers with relatively simple tax situations. Primarily, Direct File only works for taxpayers who take the standard deduction. The IRS says people who itemize their deductions will no longer be able to file their tax returns via Direct File in 2024.
read more: CNET's Best Tax Software of 2024
Direct File doesn't support itemized deductions like mortgage interest or medical expenses, but it does support both student loan interest deductions and education expense deductions because they can be claimed without itemizing.
In addition to the deduction limits, Direct File only supports three tax deductions:
If you want to take tax credits for items like energy efficiency, electric vehicles, adopted children, retirement savings, health insurance premiums, child support, etc., you'll need to use a different tax filing option.
Direct File does not support premium tax credits, so this year's pilot program will not work for taxpayers who purchased health insurance through state or federal marketplaces such as HealthCare.gov. It also won't help taxpayers who withdraw funds from health savings accounts in 2023.
To use Direct File, you must create an online IRS account. If you do not already have an account when you apply, the site will first prompt you to create one.
Are there income limits for IRS Direct File?
At an IRS demonstration on January 25, we got our first look at the income limits for taxpayers using the new Direct File program.
If you are filing as a single person or head of household, you cannot have an income of more than $200,000 when using Direct File. In 2023, he cannot have more than $160,200 in income if he receives income from more than one employer.
If you file jointly and wish to use Direct File, the income requirements above apply to both you and your spouse, and you cannot earn more than $250,000 combined.
If you're married and filing separately, you can't use Direct File unless your income in 2023 is $125,000 or less.
In addition to the income cap, Direct File in 2024 is limited to four sources of income:
- Income from Employer (Form W-2)
- Income from Unemployment Compensation (Form 1099-G)
- Social Security or Railroad Retirement Benefits (Form SSA-1099)
- Income from interest, U.S. savings bonds, or Treasury debt is $1,500 or less (Form 1099-INT)
That means if you're an independent contractor or freelancer whose income is reported on a Form 1099-K or 1099-NEC, you can't use Direct File this year. Similarly, taxpayers with income from retirement distributions, unreported tips, or reportable alimony cannot use Direct File.
What is IRS Direct File software?
In the demo we saw on January 25, Direct File looked very similar to other software programs used to file income tax returns. This application collects information using plain language in the form of a survey, provides an opportunity to review the information after each section, and compiles all taxpayer information into a 1040 form that can be reviewed and submitted online. .
Direct File is available in English or Spanish, and you can switch between the two languages using the button at the top of the application. A persistent chat button lets you ask a human assistant (not a bot) a question online, Monday through Friday from 7 AM to 10 PM ET. Direct File works on computers, smartphones, and tablets.
IRS Commissioner Danny Werfel noted in comments to reporters that the Direct File software includes more than 350 screens and more than 1,000 facts about a taxpayer's situation. He also noted that DirectFile is scalable and agile, and according to Werfel, “Potential child tax credit changes currently being considered in Congress can be made within a day with DirectFile. There is a possibility that it will be implemented.”
How does IRS Direct File software work?
The Direct File software begins by evaluating your eligibility for the program using seven questions. If you are determined to be eligible, we will then collect three pieces of information including your personal information, your family and household, your 2023 income, and any tax credits and taxes you have already paid through withholding or quarterly estimated payments. I'll move on. If you enter tax information that Direct File doesn't support, we'll alert you and point you to other tax resources to complete your tax return.
Once you complete all sections, Direct File will display the amount of your tax refund or amount owed, along with a summary of the calculations performed to determine that amount. If you receive a refund, you can choose to receive a paper check or have it deposited directly by entering your bank account details.
You will then see a completed Form 1040 that you can download and review. The overview page provides links to edit information for each section. Once you are satisfied that the information is appropriate, you can review and sign the return by verifying your identity with her AGI from last year or her PIN of your choice. You can then digitally sign and file your 2023 federal income tax return.
When does the IRS Direct File program start?
The IRS officially launched the Direct File program on January 29, but it may take some time before it is available to all eligible taxpayers. In a Jan. 25 presentation, an agency spokesperson said the first phase of the pilot program will involve pre-selected taxpayers who will receive invitations via email. If the first phase is successful, the agency plans to open the program to all eligible taxpayers in mid-March.
Can IRS Direct File help taxpayers file their state taxes online?
Taxpayers in Arizona, Massachusetts, and New York who file their federal income tax returns online using Direct File will now be able to automatically transfer their federal tax information to their state-provided online tax filing software . A California resident who uses Direct File will be redirected to CalFile when he completes his federal tax return, but will need to manually copy all the information. Washington state has no state income tax, but after completing your federal tax return, Direct File will direct you to your state's working family tax credit.
Like Washington, the other six states participating in the Direct File program (Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming) do not collect state income taxes. New Hampshire does not tax wages or income, but it does collect a flat rate tax (4% in 2023) on interest and dividends of at least $2,400. Direct File has a $1,500 limit on interest income and does not support dividend income (Form 1099-DIV), making New Hampshire taxpayers using Direct File required to pay state taxes on interest or dividends. The chances of it happening are very low.
How do I find out if I'm eligible to use IRS Direct File?
Although the program is still limited to pre-selected taxpayers, the Direct File site has an eligibility checker that anyone can use to see if they are eligible to use the program. Visit directfile.irs.gov and click the blue “Verify Eligibility” button.
The Direct File eligibility checker does not ask any questions to determine your tax situation. Instead, we present the program's limitations in a series of seven steps that cover the Direct File requirements listed above. Complete the seven steps to sign up to be notified when Direct File becomes available to more taxpayers. You can also sign up for email notifications from the yellow bar at the top of the Direct File landing page.
To learn more about income taxes in 2024, check out our best tax software or all the tax breaks available to homeowners.