The IRS announced Tuesday that it will test its direct tax-filing system in a handful of states next year.
The tax agency has been working on the free, electronic alternative to paid tax services using funds provided by the Inflation Reduction Act, which boosted the IRS budget by $80 billion over 10 years to improve services, enforcement and technology. Although Republicans in Congress have clawed back some of the new funding, the IRS continues its push to expand its capabilities.
The IRS will provide the option to use the new Direct File program to a limited number of filers during the 2024 tax filing season, with a focus on taxpayers in Arizona, California, Massachusetts and New York who have relatively simple returns. Officials in those states have agreed to integrate their tax systems with the new program, which is still under development. Residents of nine states that have no income tax – Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming – may also be eligible to participate in the pilot program.
The test run will be used to improve the Direct File system before it is rolled out nationally. “This is a critical step forward for this innovative effort that will test the feasibility of providing taxpayers a new option to file their returns for free directly with the IRS,” said IRS Commissioner Danny Werfel. “In this limited pilot for 2024, we'll be working closely with the states that have agreed to participate in an important test run of the state integration. This will help us gather important information about the future direction of the Direct File program.”
Americans currently spend about $11 billion per year on tax preparation services. Although 70% of taxpayers are eligible to use a free system called Free File, only 4% actually do so. Private tax preparation companies have opposed the IRS plan to allow direct filing, with TurboTax owner Intuit telling CBS News that the new program is “a solution in search of a problem.”