The Internal Revenue Service (IRS) revealed plans to launch a free tax-filing pilot across 13 states in the country next year to file taxes directly with the agency at no charge.
Four states, namely Arizona, California, Massachusetts, and New York, have all agreed to work with the IRS to integrate their state taxes with the program. On the other hand, taxpayers in nine other states without income tax, Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming, will also be able to join the program's initial launch.
Free Tax-Filing Pilot Program
In a statement, IRS Commissioner Danny Werfel said that the launch of the free tax-filing pilot is a crucial step forward for the innovative effort that will test the feasibility of providing a new option to taxpayers to file their returns for free directly with the agency.
Werfel added that the pilot launched next year will be limited as the agency will work closely with the states that have agreed to participate in the test run of state integration. He noted that it would help officials gather important information about the future direction of the "Direct File" program, as per The Hill.
The agency noted that the 13 states included in the initial launch of the free tax-filing program are those considered to have "relatively simple returns." The IRS also said that it anticipates that the direct tax-filing program will be able to cover several key sources of income and tax credits.
These include W-2 wage income, Social Security income, the Earned Income Tax Credit, the Child Tax Credit, standard deductions, and student loan interest deductions. The agency initially announced its plans to launch the program's test run in May following a report on its feasibility in response to a requirement in the Inflation Reduction Act.
The IRS said there would be at least several hundred thousand taxpayers across the United States who can participate in the 2024 pilot program. After filing federal returns through Direct File, the software will direct taxpayers to state-sponsored tools that would complete separate state filings.
Participating States
The chief implementation officer for the Inflation Reduction Act at the US Department of Treasury, Laurel Blatchford said that the pilot program will be launched in several phases to provide a good experience for taxpayers, according to CNBC.
Werfel said that while the pilot program will include 13 states, some taxpayers in those areas would be excluded from participating in the first year of the test run. These include those who are self-employed or contract workers filing Form Schedule C.
This shows business profits or losses will not be eligible, along with filers claiming the premium tax credit to reduce the cost of health insurance purchased through the marketplace.
However, critics of Direct File argued that a government-run system will most likely provide a worse experience for taxpayers than currently available. They also noted that the federal tax collector should not play the role of tax preparer, said CNN.
