Oct 18, 2023 - Economy

IRS will launch free tax filing program in 2024 for 13 states

Illustration: Allie Carl/Axios

A free tax program announced Tuesday by the Internal Revenue Service will pilot in 13 states for the 2024 filing season.

Why it matters: Filing online returns for free could reshape how millions of Americans do their taxes and could have disruptive effects on the multi-billion dollar tax preparation industry.

  • Arizona, California, Massachusetts and New York will integrate state taxes into this system, called Direct File.
  • Taxpayers in nine other states without an income tax — Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — may also be eligible to participate in the pilot.

The latest: "This limited-scale pilot will allow the IRS to evaluate the costs, benefits and operational challenges associated with providing a voluntary Direct File option to taxpayers," the agency said in a statement.

  • The IRS will evaluate how to handle challenges for future iterations of the program based on data collected in the pilot.

Details: Taxpayers with relatively simple returns are eligible to participate in the pilot. The IRS currently anticipates eligibility will include:

  • Income: W-2 wage income, social security and railroad retirement income, unemployment compensation, interest of $1,500 or less
  • Credit: Earned Income Tax Credit, Child Tax Credit, Credit for Other Dependents
  • Deductions: Standard deduction, student loan interest and educator expenses

Flashback: The 2022 Inflation Reduction Act directed the IRS to assess the possibility of a free, direct e-file program.

  • The IRS submitted a report to Congress in May 2023.
  • All states were invited to join the pilot program, the IRS said.

How it works: Direct File will be mobile friendly, interview based and available in English and Spanish.

  • It will first be introduced to a small group of eligible taxpayers and then expanded.
  • Taxpayers in the 13 eligible states can use other tax preparation programs.

Go deeper: How a proposed IRS tool could disrupt the billion-dollar tax prep industry

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