IRS Direct File Program Goes Live In 12 States
from the free-as-in-free dept
It’s been a long and incredibly frustrating road to get here, but the IRS’ free Direct File pilot program is now live this tax season in 12 states. We have had a list of posts we have done on the topic of tax filings, most of which revolve around Intuit and some other tax-prep organizations’ lobbying efforts with the federal government to keep people from being able to do this simple, free tax return activity at all, so jealous were they of the profits they have collected by making such options non-existent. Intuit, in particular, has been awful on this subject, having been subject to fines from the FTC for advertising free tax prep services and then making them as difficult to find as possible so that the company could instead coax the public into paid services.
Throughout it all, Intuit and its cohorts have done a full Chicken Little when it comes to the IRS program. It’s redundant given Intuit’s program, the company says. It doesn’t cover enough taxpayers. Gig workers can’t use it. Oh, and everyone that uses the program should be prepared to be audited by the IRS because… reasons, I guess?
Well, we’re all going to get answers to just how much of the sky will fall over this program and how quickly, with the release of the pilot program this year.
The Internal Revenue Service’s free tax filing service, Direct File, is now available in 12 states for taxpayers with simple tax returns. The service, available in English and Spanish, underwent “weeks of successful testing” before the launch, the US Treasury Department said today.
“Direct File provides a free, secure option for taxpayers with simple tax situations in 12 states to file their taxes directly with the IRS,” the Treasury Department said. “Direct File is easy to use, with no hidden junk fees, and works as well on a smartphone as it does on a laptop, tablet, or desktop computer. Direct File shows taxpayers the math so they can be sure that their return is accurate, and they are getting the refund they are entitled to.”
As far as how many folks are going to be eligible in those 12 states, the IRS is thinking it’ll be somewhere just shy of 20 million taxpayers. Given that we’re talking about roughly a fifth of the states within the union, this certainly isn’t an insignificant number, no matter the dire warnings from Intuit previously. If this tracked as a national program to covering something like a quarter or a third of taxpayers nationally, that’s a huge chunk of the population. Which, frankly, would explain all of that concern and lobbying efforts on the tax industry’s part.
There are some limitations here, which should be expected. Those chiefly revolve around income types and amounts.
Income types that cannot be reported with Direct File include income from payment apps, online marketplaces, or payment cards; income from independent contractor and gig work; income from rent, prizes, and awards; income from pension and retirement account distributions; allocated tips and unreported tips; and alimony.
Direct File is further limited by the amount of income. You can’t use Direct File if your wages were over $200,000, or $160,200 if you had more than one employer. Direct File also isn’t available to those who use the filing status “Married Filing Separately” and had wages of more than $125,000. For a married couple filing a joint return, there is a combined wage limit of $250,000.
There’s another limit related to how you obtain health insurance. Direct File won’t work if you bought health insurance from a HealthCare.gov marketplace or if you withdrew money from a health savings account. Other types of health insurance are supported.
But even with all of those caveats, millions of taxpayers are eligible just in the pilot program and that will only expand exponentially if this goes national. That’s no small thing.
And so now we wait and see how the pilot goes. I fully expect it to be successful. Not because I have some absurd faith in the federal government generally, or the IRS specifically. Instead, it’s because the point that has been made all along in the effort to get this program started is still true: for most taxpayers, tax prep should be incredibly simple and done with information that the IRS already largely has. If this isn’t a national program within a couple of years, the only surprise would be if that was not the result of an even more robust lobbying effort by the tax industry.
Filed Under: direct file, free file, irs, taxes
Comments on “IRS Direct File Program Goes Live In 12 States”
The limitations sound like a pretty reasonable “you can use this if you file a bog-standard 1040EZ or 1040A without anything fancy on it”. The only one that stands out to me is the one about the HealthCare.gov marketplace, the rest are all cases where you’ll need to file additional forms.
Agreed. And my expectation is that as development of this progresses, those restrictions will be removed one at a time. The approach the IRS is taking – try to help the people with the simplest returns first – is not only a good development tactic, but it’s good policy because those are the people who need the most help.
When you are an essential worker, the IRS knows how much you owe because you earned so little. The IRS should just send a postcard with said amount for one to pay. One would be free to do all the work an verify.
I guess that only rich folk with assets to hide need fill out all those silly forms with the add this, subtract that busy work.
Not sure will pay taxes after the rich have killed the middle class.
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If the situation were that simple, wouldn’t payroll deduction have taken care of any amounts owing, such that the balance would be zero?
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“If the situation were that simple, wouldn’t payroll deduction have taken care of any amounts owing, such that the balance would be zero?”
If the employee takes it upon themselves to adjust their W2 appropriately … yes – it is possible to get close to zero but it is not the employers’ responsibility to do such and regardless, one still needs to file a return. At least in the US, afaik.
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I’ve seen articles that talk about how this is exactly how it works in some European countries. Basically, their version of the IRS already knows how much you make and how much tax you pay. And since they already know this, they file the tax return automatically. If someone is owed money or needs to pay more, then the government will send put a letter. Otherwise, the average person doesn’t need to go through even filing a tax return.
No pension/retirement income is the deal breaker for a huge number of people (and getting larger every day). Of course, what we really should have is something even simpler and completely automated so you don’t have to file anything to get your refund. Plus, there’s still the state taxes to do.
Nope, Intuit has nothing to worry about–for now.
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Nor in the foreseeable future, because their bribes are paid in full, and it’s completely legal!
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If we’re talking about how things “should” be, why would there be a refund at all? A refund is the correction of an error: too much money having been deducted from payroll (with no interest having been paid; after being unimportant for 2 decades, that started to matter around mid-2022).
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As a former tax preparer, Retirement income is
a surprisingly complicated category to handle. It almost always requires additional verfication to determine if penalties apply, when income taxes apply can very depending on the source of the income and how it is structured. Its not complicated by hand, you mostly just breeze over a lot of inapplicable questions, but in software that can be a mess, and since this seems to be a narrow pilot launch before investing in the more complex stuff, retirement income is one of the things that you drop. Better than those claims about audits coming true when its discovered the IRS software was bugged and failed to apply the early withdrawl penalty.
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“Retirement income is
a surprisingly complicated category to handle.”
One might say it is unnecessarily complex.
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I fail to see your point. Or rather, your point seems to be missing key data to draw your analysis. You have replied to a comment discussing the reality of testing new software in a production environment and why software developed for that environment has the limitations it does (a limited beta). You have countered that the limitations exist and they shouldn’t.
And? How does that affect the reality of what the developers tasked with software that will work first time for the pool of millions of eligible taxpayers? I’ll bring your criticism to the 1950s as soon as time travel becomes availible.
The IRS does not write tax law. Congress does. Turbotax wasn’t built in a year. Its been being built for decades. I don’t see how the IRS could change retirement income tax law nor simply recreate turbotax in a year. I pointed out that Rome wasn’t built in a day and you asked why Rome was so big then.
A single form of retirement income would make things easier. A single form of ordinary income would make things easier. Hell, making income income and not treating them differently would make things easier. That is not the law.
I could go on about ways we could better streamline the system. Eliminate loopholes, as they say. Im not talking about what could have been if our tax laws were reasonable. I am commenting about the feasibility of accomplishing a specific task in the environment it needed to be accomplished in. And to that end, with the starting environment the IRS had, I would not have expected more than what we have in this first step pilot product.
Assume the IRS could have changed the law in 2023 to retroactively align all retirement plans, regardless if they are Pensions, private corporately managed plans, private personally managed plans, or public social programs, to a single set of rules. That’s a pretty stupid assumption, but lets use it. Retirement income is income that is tax-advantaged – i.e. you pay fewer taxes on retirement income than normal income. Any retirement plan requires verification of tax-advantaged status of the income and the surety the software handles the tax advantages correctly. That is an added complication that would disqualify retirement income from a limited eligibility test run of the most basic form of return.
I’m in Arizona and was hoping I’d get a chance to try it out, but I’m eligible for a pretty significant tax credit this year that it doesn’t support.
Oh well, maybe next year.
I used H&R online. As I own a home I started by using the full meal deal package and then it turns out the Trump tax cuts for the rich tightened write off’s for homeownership etc… So I only needed the basic. Which as there is now an anti-trust inquiry bears out they make near impossible to awitch to a lower. It involved several phone calls as your locked in after choosing until an agent changes for you. Via chat they wanted my full legal name my full social security number my password, mailing address etc… Everything was to be sent via unsecure chat and was detailed enough that should those agents moon light as scammers not need anything further.
Tax, Corporation, Government
If the government wants their taxes, there should always be an option to pay tax directly without corporate interference and payment. For everyone. It sounds like we’re moving to stupid again, like not being able to pay rent without a corporate fee.