In advance of the planned rollout of its Direct File pilot program in March, the IRS provided an online demonstration of the program to members of the media, Accounting Today reported.
Direct File will provide taxpayers who meet certain eligibility requirements with the choice to file their federal tax return electronically and directly with the IRS for free. The pilot program will be open to low- and moderate-income taxpayers with simple returns.
Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming are participating. Most of those states do not tax income at the state level, but the four that do—Arizona, California, Massachusetts and New York—will integrate their state taxes into the Direct File pilot for filing season 2024.
After filing their federal return with Direct File, taxpayers in Arizona, Massachusetts and New York will be offered the opportunity to move on to a state-filing tool that the state will provide. Taxpayers in California won't be able to take their information from Direct File with them, but the IRS directs taxpayers to California's CalFile tool. That tool does some pre-populating of information, and then the taxpayers can complete the filing of their California return through CalFile. But their information from Direct File does not transfer over as it does with Massachusetts, Arizona and New York.
Washington state does not have a state income tax, but it does have a Working Families Tax Credit, and Washington state taxpayers will be provided with a link to the website where they can claim that tax credit.
"The states are a crucial partner for the IRS in the nation's tax system," said IRS Commissioner Danny Werfel during a press conference. "We will be working closely with the 12 pilot states in this test run, which will help us gather information about the future direction of the Direct File program. Overall, the Direct File pilot will allow us to further assess customer and technology needs and evaluate and develop solutions to meet the needs of taxpayers in the years to come."
An IRS official, who asked not to be identified, told Accounting Today that there will be no limit on the number of people who can participate in the pilot program, but the IRS will be taking a phased approach in inviting and admitting people to the pilot.
Taxpayers may start the program at directfile.irs.gov to obtain information about the pilot program, in order to determine eligibility, and to learn how to use it. The IRS plans to provide live online support through the IRS staff on Mondays through Fridays, from 7 a.m. to 10 p.m. EST, Accounting Today reported.
Taxpayers will be able to click on every page and toggle back and forth between English and Spanish. That is because the IRS learned from a 100-person focus group that bilingual taxpayers may want to consult the site in both languages for information. In addition to the Spanish language button, they will have a chat button where they can participate in a live chat with a trained customer service representative. If taxpayers have a question, they they can click on the chat button from every page and get assistance from a trained IRS Direct File assistor.
Direct File supports the standard deduction but not itemizing deductions. It does, however, provide additional information about what it means to itemize deductions and explains why some taxpayers might itemize.
DirectFile also supports adjustments for educator expenses and student loan interest. It supports multiple types of health insurance, but there are certain types that it does not support. Direct File supports the Child Tax Credit, the Earned Income Tax Credit, and the Credit for Other Dependents. While it doesn't currently support the Child and Dependent Care Tax Credit, it offers advice on how taxpayers might be able to use other tax software to claim the credit.
When taxpayers reach the end of a section, they get a quick summary screen where they can look at all of the information they have provided so far, and can review and edit their information as they go.
"Direct File walks the taxpayer through the complexities of the Internal Revenue Code to complete their filing easily with an accurate calculation of their refund or remaining balance," said Werfel. "Direct File is designed to be transparent—at every step, it shows the work behind the calculations, so users can be confident that the return is complete and accurate."
Taxpayers are also given the opportunity to download a copy of their draft Form 1040 for review with all of the applicable schedules and the W-2, and edit any part of it before submitting it for processing.