The Internal Revenue Service (IRS) made a full-scale launch of its Direct File pilot on Tuesday that allows some taxpayers from 12 states to file returns online with the agency.
Taxpayers from the following states are eligible to use the service through the April 15 tax deadline—Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State, and Wyoming.
In four states—Arizona, California, Massachusetts, and New York—taxpayers who complete their federal returns on Direct File will be guided to a state-sponsored tool to finish their state tax returns.
The U.S. Department of Treasury estimates that one-third of all federal income tax returns this year could be prepared via Direct File. Of the 19 million eligible taxpayers, 5.2 million are from California, 3.8 million are from Texas, 2.8 million reside in New York, 2.4 million in Florida, and 1.1 million are from Washington.
Taxpayers do not have to finish the filing process in Direct File in one go. Instead, they can pause at any stage and later sign in to complete the filing, provided it is done before the deadline. In addition to English, the service will be available in Spanish.
Direct File has already been used by 20,000 taxpayers, according to the Wall Street Journal. The number includes taxpayers who have started using the service but have not finished filing the returns. During the testing phase, users reported hundreds of dollars in savings, the Treasury stated.
“Many taxpayers we’ve heard from filed their taxes in less than 30 minutes using Direct File and praised it as an easy, no-cost tax filing experience,” said IRS Commissioner Danny Werfel.
“Our goal with the Direct File pilot is to help people meet their tax obligations as easily and quickly as possible. We developed Direct File from the beginning with taxpayers’ help, and we’ll continue to talk to taxpayers about their experience to learn more about what taxpayers want for future digital services.”
At every step, Direct File will show the work behind the tax calculations, which will allow users to be “confident that the tax return is complete and accurate,” the IRS said.
A ‘Thinly Veiled Scheme’
The service could negatively affect the user base of commercial tax preparation software in the market. In an interview with AP News, Derrick Plummer, a spokesman for Intuit, slammed the Direct File service. Intuit is the developer of Turbo Tax, a tax preparation software.Direct File “is not free tax preparation but a thinly veiled scheme that will cost billions of taxpayer dollars to pay for something already completely free of charge today,” he said.
There is an “obvious conflict of interest when the IRS acts as tax preparer, filer, and auditor,” which would impact low-income and vulnerable Americans the most, the letter stated.
Taxpayers choose to work with tax professionals “because they want an advocate in their corner who will represent their interests against the IRS bureaucracy.” Moreover, the Direct File program “needlessly threatens the livelihood of thousands of these small businesses tax preparers.”
To use the service, taxpayers must have lived in the same state during the entire calendar year 2023. Direct File currently only works on a few types of income, credits, and deductions.
This includes taxpayers who “report income earned from jobs that generate a Form W-2;” those who claim Earned Income Tax Credit, Child Tax Credit, and the Credit for Other Dependents; and individuals who claim the standard deduction and deductions for educator expenses and student loan interest.
“If the IRS sent you (or your spouse or dependents) an Identity Protection (IP) PIN, you'll also need that,” the agency said.
