IRS Direct File Program Comes to Texas

Published: Feb 23, 2024

The IRS launched a Direct File pilot for 2023 in 13 states, offering free online filing for simple returns with limited income types, deductions, and credits. While not affecting most firms yet, it may expand in coming years.

 

William Stromsem, CPA, J.D., George Washington University School of Business

 

The Inflation Reduction Act of 2022 directed the IRS to explore a direct filing program and for 2023, the IRS started a pilot program for individuals in Texas and 12 other states. The pilot program is limited to certain types of income, deductions and credits, and is aimed at more average taxpayers who are generally not our client base. IRS Direct File will affect return preparation software sellers, but it will not likely affect our practices for the next few years. However, it is worth noting as we look towards the future.   

IRS Direct File is an online program that works like most commercial return preparation software and walks the user step-by-step through the return process, asking questions and inviting input of identifying information, W-2s and certain other information returns. Direct filers have access to IRS employees who provide dedicated Direct-File customer support in both English and Spanish. When the data input is complete, the program shows a summary of the return and resulting taxes; the return is e-filed with receipts for the submission and when the IRS accepts the return.   

 

The types of income, deductions and credits covered by the program are limited: 

  • Income—W-2 wages, SSA-1099 for Social Security, 1099-G for unemployment compensation and 1099-INT for interest income of $1,500 or less (not business income or income from the gig economy);  

  • Deductions—standard deduction (not itemized deductions), student loan interest and educator expenses; and  

  • Credits—earned income credit, child tax credit, credit for other dependents, but not the child and dependent care, saver’s or premium tax credits.  

Most of our clients have tax issues that are not covered by the pilot program and in any case, they likely want professional assistance and will not want to figure out how to use the online program. Some may not entirely trust an IRS return preparation program.   

You may want to provide information on this program to non-clients with simple returns that you do not want to undertake.  

You may also want to watch the program. It is likely to be expanded in future years – likely augmented by artificial intelligence – so this program bears watching.   

 

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