IRS To Pilot New Service In 13 States Next Year

In 2024, the IRS plans to release its version of tax preparation software, similar to TurboTax and its competitors, giving some taxpayers a new filing alternative they have been asking for for years.

The IRS revealed on Tuesday that its new Direct File program will be accessible in only 13 states for the upcoming filing season and will not be a good fit for all taxpayers. You’ll need an exclusive invite to be among the first to test it out.

Speaking anonymously before Tuesday’s announcement, an IRS official said invitations to participating taxpayers would be sent out around the middle of February.

The source said the program would be available to a broader audience if all goes well with the first batch of applicants. The Internal Revenue Service’s goal is to have the program available to anyone in the 13 qualifying states by the April tax filing deadline. In an email on Tuesday, the IRS indicated that hundreds of thousands of users are expected.

Taxpayers are hesitant to utilize IRS filing software if it doesn’t process federal and state returns similarly; therefore, this was considered when designing Direct File. In the initial year, Direct File will only be available to residents of the nine states without an income tax and the four states (California, Arizona, New York, and Massachusetts) who have agreed to collaborate with the IRS to link the IRS software with their state websites for submitting tax returns.

If the 2024 filing season is successful and Direct File is maintained, the person added, the agency is open to inviting any state eager to participate. There are no financial requirements for participation.

There are restrictions in the Direct File program: Only a subset of tax credits and income will be accepted, and itemized deductions (which more than 10% of taxpayers use) will be prohibited. It’s not available to anyone who makes more than $1,500 annually in interest income or claims credits for childcare costs. According to a statement released by the IRS on Tuesday, the software is not expected to process income from freelance work or other forms of self-employment.

You can claim the Earned Income Tax Credit, the Child Tax Credit, and the Additional Child Tax Credit using Direct File. Teachers’ fees and student loan interest can also be deducted with this program’s help. However, the software cannot currently process other types of deductions or credits.

Those who aren’t eligible for the IRS’s new program can still file their taxes for free in other ways. If your income is below $73,000, you may qualify for free use of select commercial tax preparation software through the IRS’s Free File program. If your income is below $60,000, you may also allow free tax preparation from volunteers at one of the many Volunteer Income Tax Assistance programs the IRS funds nationwide.