IRS Direct File free pilot will not be open to everyone: How to know if you’re eligible

Innovation? In government?

Don’t look now, but the Internal Revenue Service is making strides.

On Tuesday, the IRS announced it was advancing its Direct File pilot program for the 2024 filing season, a program that was originally announced earlier this year. The Direct File tax-filing option is designed to allow taxpayers to file their returns online for free, and if successful, could become a viable alternative to tax-prep software such as TurboTax or H&R Block, which are not free services for most users.

The most recent announcement from the agency laid out some key details about the pilot program and noted that several states were planning to participate. Specifically, Arizona, California, Massachusetts, and New York will work with the IRS to integrate state taxes into the program next year, and taxpayers who live in any of the nine states that do not levy income taxes on residents can participate too.

In a statement, IRS commissioner Danny Werfel said that advancing the pilot program “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.”

Further, he said that “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.”

In order to participate, taxpayers must:

Live in one of the participating states: Arizona, California, Massachusetts, or New York

Live in a state that does not have state income taxes: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming 

Have a relatively simple tax return: The IRS’s release says that the program “will be limited to taxpayers with certain types of income, credits and deductions.”

Have a specific type of income: The release also says that “it anticipates specific income types, such as wages on a Form W-2, and important tax credits, like the Earned Income Tax Credit and the Child Tax Credit, will be covered by the Direct File pilot,” but that could change.

The Direct File pilot is only one part of a slew of new features and processes that the IRS is incorporating in an effort to become more modern and efficient. The agency is also moving completely away from paper returns, allowing taxpayers to correspond with the IRS digitally; upgrading outdated technology; and beefing up its employment ranks.