‘Clear and simple’: What the new IRS Direct File will look like and who is eligible

For many Americans, tax season brings headaches. A pilot program from the IRS hopes to change that.

The IRS is launching the Direct File pilot in 2024 (for 2023 taxes.) It’s a free service that allows taxpayers initially in 13 states to file electronically directly with the IRS.

Four states — California, Arizona, Massachusetts and New York — will work with the IRS to integrate state taxes. The nine states without an income tax — Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — may also be eligible. Washington is also joining for the state’s application of the Working Families Tax Credit. It will be limited to certain types of income and claiming limited credits and adjustments.

Direct File will be available in English and Spanish.

Igor Volsky — executive director of Groundwork Action, an economic advancement organization — sat through a demonstration of the tool this week.

“I didn’t think I would enjoy watching someone else do their taxes, actually,” Volsky said. “And it became very clear, even in this early iteration, that this is the kind of simple and clear user experience that I think so many taxpayers have really been clamoring for.”

Volsky said it underscored why the $14 billion tax preparation industry has spent so much lobbying on the topic. The Associated Press reported tax preparation companies such as Intuit and H&R Block spent $39.3 million since 2006 lobbying on free file and other matters.

A congressional report released in July found the personal information of millions of people who used H&R Block, TaxSlayer or TaxAct to do their taxes may have been shared with Google and Facebook.

“Direct File is not free tax preparation, but rather a thinly veiled scheme where billions of dollars of taxpayer money will be unnecessarily used to pay for something already completely free of charge today – free to the taxpayer and actually free for the government,” Tania Mercado, a spokesperson for Intuit, the company behind TurboTax, said in a statement.

Mercado said the IRS is asking taxpayers to trust it after it openly acknowledged “systemic inequities” that may have targeted low-income and Black taxpayers at a higher rate for audits.

“The Direct File scheme is a solution in search of a problem, and that half-baked solution now has the potential to become a financial nightmare for tens of millions of taxpayers,” Mercado said.

However, as part of a multi-state agreement, TurboTax paid out settlement checks to low-income Americans “tricked” into “paying for free tax services,” according to the Office of the New York Attorney General.

Volsky said the tool is being thoughtfully tested to ensure people who could benefit the most know about and understand Direct File.

“By taking part in this pilot,” Volsky said, “they’re really helping the government help them in building out a system that is responsive, building out a system that is safe, secure, accurate, and — I think importantly for many taxpayers — free.”

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