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Residents of 12 states can now file their 2023 federal tax returns at no cost with the IRS Direct File Pilot program.
IRS has launched the Direct File pilot program in 12 states across the US starting from the 12th of March 2024. It enables eligible individual taxpayers to e-file their 2023 federal income tax returns for free.
As part of the modernization and digitalization initiative owing to the $80 Billion funding received by the IRS from The Inflation Reduction Act 2022, it is aimed at replacing the need for millions of US taxpayers with simple tax returns having to churn out a hefty amount of fee to commercial tax prep services.
The 12 states where the system is available include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.
The program offers a step-by-step guide to help a person understand their taxes better as well as get real-time online support from IRS customer service representatives for addressing queries. It includes helping with technical issues, clarifying tax terms, and explaining forms referred to in the Direct File. In addition, the program can be accessed using a smartphone, tablet, or desktop computer.
Further, there will be links in the Direct File program which allows transferring a taxpayer's federal tax information to their state's online tax tool viz. Arizona, California, Massachusetts and New York which impose state taxes.
These are general guidelines, and taxpayers need to check the IRS website for the latest information and state-specific criteria for entry into the Direct File Program. To check the eligibility criteria, a taxpayer can visit the IRS website.
Backlash (IRS’ Free File V/s IRS’ Direct File)
One of their biggest criticisms is that free tax prep services known as IRS’s Free File program already exist and developing the Direct File system, which has certain overlapping features, will end up costing taxpayers billions of dollars.
A Government Accountability Office report from April 2022 found that while 70% of taxpayers were eligible for the IRS’s free-filing program, only 3% of taxpayers actually used the service.
The Direct File program is distinct from the IRS’s Free File program where the latter partners with tax software companies to provide free filing for individuals making $79,000 or less.
However, the Direct File program is moving ahead despite severe resistance from TurboTax and H&R Block who are some of the third-party software partners of IRS’s Free File program.
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