IRS Launches Free Direct File System for 2024 Tax Season
TL/DR –
The IRS will open a free, online filing system for some Americans for the 2022 tax season as part of an experimental pilot program. The Direct File system will be available to residents in 12 states who have income from an employer or unemployment compensation, Social Security benefits, and interest of $1,500 or less, but is not an option for those with other types of income, such as gig work or business income. The program, which is funded by the $80 billion allocated to the IRS as part of the Inflation Reduction Act, faces opposition from tax preparation companies and many Republicans in Congress, who contend there have been previous efforts to strip the agency of the funds.
IRS Online Tax-Filing System to Launch Amid Opposition
The IRS’s free online tax-filing system, known as the Direct File system, is set to launch for select Americans in this year’s tax season. This move comes as the IRS explores providing taxpayers with an alternative to costly tax preparation services.
This pilot program stems from the Democrats’ $80 billion funding under the Inflation Reduction Act, part of which aims to provide a government-managed tax preparation service. This service could fundamentally change the game for Americans during tax season.
Direct File proponents argue that it can simplify a complex system for taxpayers and motivate digital returns filing, which benefits the IRS by being faster and cheaper to process.
However, the program encounters stiff opposition from tax preparation firms and some Republicans, who are wary of increasing IRS funding.
Direct File System – What You Must Know
The pilot will initially cover taxpayers in 12 states meeting eligibility terms. Unlike the existing Free File program, Direct File imposes no income threshold.
Users can access Direct File online via various devices. The system offers comprehensive guidance, a live-chat function for troubleshooting, and downloadable tax return copies.
Uncertain Future Ahead for Direct File
Despite its potential, the Direct File system faces uncertainties. Past experiences with the government’s Free File options indicate low adoption rates. An initial report raised questions about the tool’s usefulness, especially its lack of a state-level filing feature. This shortcoming led to decreased support for the free filing program in a government survey.
The tax preparation industry strongly opposes the Direct File program. These companies question the system’s necessity, citing the low usage of Free File, and dispute the government’s claim that taxpayers desire a government option.
The future funding of the IRS under the Inflation Reduction Act, is also uncertain due to opposition from Republicans in Congress. In a recent debt ceiling deal, the IRS lost $20 billion of its allocation from the funding.
—
Read More US Economic News