The IRS Direct File program is a new option from the IRS to file your taxes.
In the United States, you can hire a tax professional to file your taxes, or you can use tax software to help you file online. You can also choose to do your taxes by hand. That involves using paper forms or digital equivalents to complete your taxes.
But starting in 2024, you can also use a free digital tax filing service that is offered directly by the IRS. The service is designed to expand free tax filing to more people.
Here’s what you need to know about the IRS’s free Direct File program.
IRS Direct File Explained
The IRS Direct File program is one option for filing your taxes in 2024. The program is a pilot designed to allow some taxpayers to digitally complete their tax return and file their Federal taxes using a program created and managed by the IRS. The tool works on a computer, a tablet, or a phone. That means you can complete your taxes while riding the bus just as easily as in your home office.
Right now, this tool can only file your federal return. It will not file your state return.
Who Can Use the IRS Direct File Program?
IRS Direct File isn’t designed for everyone. This year, you can only use the IRS Direct File Program if you live in one of the twelve pilot states:
- New Hampshire
- New York
- South Dakota
- Washington state
If you live in one of the states above, you also need to meet certain criteria related to your tax situation. The criteria include:
Qualifying income types. The program supports only the most common income types. For the current tax season, Direct File supports W-2 income, unemployment income, Social Security income, Railroad Retirement Income, and interest income of less than $1,500.
If you’re self-employed, a stock market or crypto investor (or trader), a landlord, or even a side hustler (like an Uber driver), you can’t use Direct File. The software doesn’t currently support self-employment income, rental income, or income from trading or dividends.
Supports three credits. Direct File supports the Earned Income Tax Credit (EITC), the child tax credit, and tax credits for other dependents.
You can’t use Direct File if you want to claim educational tax credits, the saver’s credit (for low-income retirement savings), or if you’re eligible to claim a tax credit related to Dependent Care. The American Opportunity Tax Credit is a key educational tax break for college students and their parents. The new Direct File doesn’t allow you to claim this credit (or other related tax credits).
Not many deductions are supported. The program allows you to claim student loan interest and educator expense deductions. Other than those two deductions, you’ll have to take the standard deduction. Most people don’t need to itemize their deductions, so that won’t be a huge problem. However, we were surprised to see that Direct File doesn’t support retirement plan deductions or deductions for contributions to Health Savings Accounts. These above-the-line deductions are common among people with W-2 jobs, and it seems like an oversight to support the student loan interest deduction but not these other common deductions.
When you layer these requirements onto each other, there are likely very few taxpayers who can use the Direct File service this year.
IRS Direct File Limitations
When you’re using a product from the IRS, you may expect some side benefits. Unfortunately, Direct File is just a program to help you file your Federal taxes, so you can’t expect special benefits from using the tool. These are a few common concerns that aren’t addressed by the IRS Direct File Program.
Only supports Federal taxes. The Direct File program only helps you file your Federal income tax. If you need to file state income taxes, you’ll need to use a different program.
People who live in Arizona, California, Massachusetts, or New York can use Direct File and will be directed to a state-supported tool. It’s not clear whether information from Direct File will be uploaded to the state-supported tool.
Washington state doesn’t have an income tax, but it offers a tax credit based on income. If you use Direct File, and you live in Washington, you’ll be directed to a site where you can apply for the credit.
Not direct line to IRS representatives. Direct File users will be able to live chat with IRS customer service representatives, but these representatives don’t offer full-service customer support. They will provide technical support associated with the Direct File technology. Additionally, they will be able to answer basic questions related to the scope of the Direct File program.
Doesn’t guarantee a faster refund. Online filers tend to get their tax refund before paper filers, but using Direct File doesn’t guarantee a faster refund. Expect to wait around three weeks after filing before you see your refund hit your bank account.
You can still be audited. Direct File simplifies tax filing, but you may still be audited by the IRS. If you misfile your information, you may need to use tax software or services to help you avoid tax penalties and other problems.
Alternatives to IRS Direct File
Instead of using IRS Direct File, you may want to use tax software. The software we review has been refined over many years.
FreeTaxUSA works with almost all tax situations and has free federal returns and state returns are just $14.99 each. You can add on access to a tax professional and audit assistance for an additional cost.
TurboTax has a version for simple returns that is free to file a federal return and one state return. This is for simple returns only and not everyone will qualify.
Check out the best free tax software.
Final Take on IRS Direct File
It’s great to see the IRS moving towards a robust free tax filing service. Filing taxes should be simple, and the IRS should provide a robust, free solution for filing taxes. But at this time, IRS Direct File is unlikely to be a good solution for most taxpayers.
The solution is so limited that most people will be excluded because they want to claim additional income or deductions. Even if you can use the IRS Direct File, this is not the year to test it out. You’ll need to use two programs to complete your Federal and State taxes. Plus, you may miss a deduction or a credit because of the software limitations.
For the 2023 tax filing season, skip IRS Direct File. Use a free tax filing program that will allow you to file state and Federal taxes quickly and easily.