IRS Direct File Pilot Plans Detailed, FS-2023-23; IR-2023-192

The Internal Revenue Service detailed how it is proceeding with a pilot program that will allow taxpayers to file their taxes directly on the IRS website as an option along with doing an electronic file or working through a tax professional or other third-party tax preparer.

Residents in select states will have the option to participate the direct file program, which is being set up as part of the provisions of the Inflation Reduction Act, in the upcoming 2024 tax filing season. The nine states included in the pilot are states that do not have a state income tax, including Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. The pilot will also include four states that have a state income tax – Arizona, California, Massachusetts, and New York – and in those states, the direct file pilot will incorporate filing state income taxes.

The agency is expecting several hundred thousand taxpayers across the thirteen states to participate in the pilot.

“We will be working closely with the states in this important test run that will help us gather information about the future direction of the directfile program,” IRS Commissioner Daniel Werfel said during an October 17, 2023, press teleconference. “The pilot will allow us to further assess customer and technology needs that will help us evaluate and develop successful solutions for any challenges posed by the directfile option.”

Werfel stressed that there is no intention for the IRS to require taxpayers use the direct file option and if the pilot proves successful and the agency moves forward with the program, it will simply be another option in addition to everything that currently is available for taxpayers to file tax returns without eliminating any of those other options.

He noted that the pilot will be aimed at individual tax returns and will be limited in scope. Not every taxpayer in those pilot states will be able to participate.

“The pilot will not cover all types of income, deductions, or credits,” Werfel said. “At this point, we anticipate that specific income types, such as wages from Form W-2 and important tax credits, like the earned income tax credit and the child tax credit, will be covered by the pilot.”

According to an IRS statement issued the same day, the agency also expects participation will include Social Security and railroad retirement income, unemployment compensation, interest income of $1,500 or less, credits for other dependents, and a few deductions, including the standard deduction, student loan interest, and educator expenses.

Some examples that were given that would disqualify a taxpayer from filing through the direct file pilot would be those receiving the health care premium tax credit or those filing a Schedule C with their tax return, though in future years if the agency moved forward beyond the pilot, those could be incorporated into the free file program.

He added that the agency is still working on the pilot’s details and that testing is still ongoing. Participants who will be invited to use the free file program in the pilot phase will be noticed later this year. Those participating in the pilot program will have their own dedicated customer service representatives to help them with the filing process.

Werfel provided a broad look at the metrics that will be used to evaluate the program, including the customer experience, logistics and how well the IRS can operate such a direct file platform, and how many taxpayers the pilot actually draws in addition to how many ultimately meet the criteria for participation, which will help quantify the demand for the program overall.

By Gregory Twachtman, Washington News Editor

FS-2023-23

IR-2023-192