Taxpayers in select states will soon be able to prepare and file their federal income taxes online directly with the IRS for free next year.
Beginning in 2024, Arizona, California, Massachusetts and New York will integrate state tax filings into the so-called Direct File pilot program. Taxpayers in nine other states without an income tax — Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — may also be eligible to participate in the program, the IRS said.
"This 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," IRS Commissioner Danny Werfel said in a statement. "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.
The IRS expects that several hundred thousand taxpayers across the country will participate in the pilot program.
Americans collectively spend about $11 billion each year outsourcing their tax preparation services.
Eligibility will be limited to "taxpayers with relatively simple returns."
Although the scope of the program is still being finalized, the IRS said it will likely cover specific income types, including wages on a Form W-2, Social Security, unemployment benefits and interest of $1,500 or less, as well as tax credits, like the Earned Income Tax Credit and the Child Tax Credit.
The program will also include filers claiming the standard deduction, student loan interest deduction and tax break for educator expenses.
Self-employed individuals or contract workers filing Form Schedule C will not qualify for the program.
"We have more work in front of us on this project," Werfel said. "The Direct File pilot is undergoing continuous testing with taxpayers to identify and resolve issues to ensure it is user-friendly and easy to understand. We continue to finalize the pilot details and anticipate more changes before we launch for the 2024 tax season."
The IRS program stems from the Inflation Reduction Act, signed into law by President Biden in 2022. The law directed $80 billion to the IRS in order to modernize technology, improve customer service, deliver real-time alerts, enhance customer service and crack down on the so-called tax gap by enhancing enforcement of the wealthy.