FS-2023-23, October 2023 The Inflation Reduction Act of 2022 directed the IRS to study the possibility of a free, direct e-file program, commonly referred to as "Direct File." The IRS submitted the results in a report to Congress on May 16, 2023. The report found that a majority of taxpayers are interested in using a free IRS-provided tool to prepare and file taxes, and that the agency is technically capable of delivering a Direct File program. One of the goals of the IRS Strategic Operating Plan is to give taxpayers choices in how they interact with the IRS. This includes choices in how they prepare and file their taxes, whether it's through a tax professional, commercial tax software or free filing options. Direct File is one more choice to file a tax return. As directed by the Treasury Department, the IRS is taking steps to implement a limited, scaled Direct File pilot in the 2024 filing season to further assess customer support and technology needs as well as evaluate successful solutions to the potential operational challenges identified in the May report. The service will be mobile friendly, available in English and Spanish and will let taxpayers request available language and accessibility preferences for written communications from the IRS. 2024 Direct File pilot eligibility will be limited by tax scope For the 2024 filing season, Direct File will serve as a pilot with a goal to learn both about the Direct File service itself and the needs of taxpayers who use it. The tax scope for the pilot is still being finalized. Eligibility to participate in the pilot will be limited to filers with relatively simple tax returns reporting only certain types of income and claiming limited credits and deductions. The pilot scope is subject to change, but the IRS currently anticipates it will include: Income reporting W-2 wage income Social Security and Railroad Retirement benefits Unemployment compensation Interest of $1,500 or less Credits Earned Income Tax Credit Child Tax Credit Credit for Other Dependents Deductions Standard deduction Student loan interest Educator expenses The Direct File pilot is projected to be available to eligible taxpayers residing in Alaska, Arizona, California, Florida, Massachusetts, New Hampshire, New York, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming Eligibility to participate in the pilot will be further limited to taxpayers who reside in certain states where the pilot is available. After the release of the report to CongressPDF in May, the IRS reached out to states to discuss the 2024 Direct File pilot. Recognizing that the short window of time would likely prevent many states from being able to participate, the IRS provided as much information as possible about the pilot and had one-on-one conversations with states interested in learning more about the pilot. The IRS welcomed any state to participate in the pilot in a letter to Federation of Tax AdministratorsPDF. Eligible taxpayers in Arizona, California, Massachusetts and New York will be able to participate in the pilot this year as these states have chosen to partner with the IRS for the 2024 Direct File pilot. Eligible taxpayers in Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming will also be able to participate in the pilot as these states have no generally applicable state income tax. Washington has also chosen to join the integration effort as a partner for the state's application of the Working Families Tax Credit. The IRS and the Departments of Revenue in Arizona, California, Massachusetts, New York and Washington entered into separate Memorandums of Understanding in September for the purposes of collaboration on the IRS's Direct File pilot for filing season 2024. Direct File will only cover individual federal tax returns; it is not going to prepare state returns. However, once a federal return is completed and filed, Direct File will guide taxpayers in Arizona, California, Massachusetts and New York who want to file a state return to a state-supported tool that taxpayers can use to prepare and file a stand-alone state tax return, while taxpayers in Washington can apply for the Working Families Tax Credit. For this reason, participation in the 2024 pilot for people living in states with an income tax will be limited to those states that are actively partnering with the IRS on the pilot. The IRS will conduct a phased launch of the 2024 pilot Best practices demonstrate that the best way to test new technology such as Direct File is in a limited, controlled environment. As such, the number of taxpayers eligible to participate in the pilot will be limited so that the IRS can test its new service with eligible taxpayers while continuing to ensure a positive customer experience. The Direct File pilot will also be a phased pilot, in line with technological best practices. It will not be available to all eligible taxpayers immediately when the IRS begins accepting federal tax returns in early 2024. Because the IRS wants to make sure the pilot works effectively, Direct File will first be introduced to a small group of taxpayers in filing season 2024. As the filing season progresses, more and more eligible taxpayers will be able to access the service to file their 2023 tax returns. Decisions to move to subsequent phases of the 2024 pilot will be made as the IRS confirms that it is operating successfully and addressing issues related to customer support, state tax integration, fraud prevention and other operational concerns. More information about the pilot will be available at IRS.gov/directfile.
