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Wednesday June 12, 2024

Washington News

Washington Hotline

IRS Plans Direct File in 13 States

The Internal Revenue Service (IRS) has been developing a Direct File system for 2024. The IRS announced this week that it will be available in nine states without a state income tax. There will also be a limited pilot program for taxpayers in four states with state taxes. The nine states are Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. The four states with the limited pilot program are Arizona, California, Massachusetts and New York.

New York and Arizona announced that they have partnered with the nonprofit Code for America to develop state tax returns. Code for America's website explains that taxpayers in those states will be able to export the data from the IRS directly to a state tax return.

New York Governor Kathy Hochul stated, "I am incredibly proud that New York will be one of the first states in the nation to take this bold step, and I look forward to continued collaboration with our partners at the IRS and Code for America to ensure that New Yorkers can make the most of this new tool when it launches."

The initial Direct File program will be limited in its application. The scope is still being finalized and is subject to change. Current plans provide that eligible taxpayers may use it only if they have W-2 wage income, Social Security or Railroad Retirement income, unemployment compensation and or interest income up to $1,500. The pilot software is expected to be able to handle the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC) and the Credit for Other Dependents (COD). The taxpayer will be required to take the standard deduction but may also have student loan interest or educator expense deductions.

IRS Commissioner, Daniel Werfel, promised the pilot program will be available for mobile devices and will be offered in English and Spanish. There will be a dedicated group of IRS customer service representatives to answer questions about the online program. The pilot program for Direct File will be a test for potential expansion in the future. Werfel noted, "It will be interesting to see if we have a huge number of taxpayers trying to get into the pilot that were not able to get into the pilot, because it was limited. And that will tell us about the demand for the pilot."

Some members of Congress are supportive of the program. Senate Finance Committee Chair Ron Wyden (D-OR) indicated he is hopeful there will be a day when all Americans can directly file their tax returns. A collective statement was also made by a group of legislators led by Senate Finance Committee member, Elizabeth Warren (D-MA), calling the 2024 pilot, "an important first step towards creating a free, easy way for millions of Americans to file their taxes online."

Editor's Note: Members of both the House and Senate have been encouraging the IRS to develop a Direct File program. It is helpful that the Code for America nonprofit will start to develop state tax returns. The concept of Direct File has been opposed by tax preparation companies who are concerned that they might lose paying customers. Advocates for Direct File point out that many other countries offer this simplified filing option.

Published October 20, 2023
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