IRS Direct File Program Goes Live In 12 States
It’s been a long and incredibly frustrating road to get here, but the IRS’ free Direct File pilot program is now live this tax season in 12 states. We have had a list of posts we have done on the topic of tax filings, most of which revolve around Intuit and some other tax-prep organizations’ lobbying efforts with the federal government to keep people from being able to do this simple, free tax return activity at all, so jealous were they of the profits they have collected by making such options non-existent. Intuit, in particular, has been awful on this subject, having been subject to fines from the FTC for advertising free tax prep services and then making them as difficult to find as possible so that the company could instead coax the public into paid services.
Throughout it all, Intuit and its cohorts have done a full Chicken Little when it comes to the IRS program. It’s redundant given Intuit’s program, the company says. It doesn’t cover enough taxpayers. Gig workers can’t use it. Oh, and everyone that uses the program should be prepared to be audited by the IRS because… reasons, I guess?
Well, we’re all going to get answers to just how much of the sky will fall over this program and how quickly, with the release of the pilot program this year.
The Internal Revenue Service’s free tax filing service, Direct File, is now available in 12 states for taxpayers with simple tax returns. The service, available in English and Spanish, underwent “weeks of successful testing” before the launch, the US Treasury Department said today.
“Direct File provides a free, secure option for taxpayers with simple tax situations in 12 states to file their taxes directly with the IRS,” the Treasury Department said. “Direct File is easy to use, with no hidden junk fees, and works as well on a smartphone as it does on a laptop, tablet, or desktop computer. Direct File shows taxpayers the math so they can be sure that their return is accurate, and they are getting the refund they are entitled to.”
As far as how many folks are going to be eligible in those 12 states, the IRS is thinking it’ll be somewhere just shy of 20 million taxpayers. Given that we’re talking about roughly a fifth of the states within the union, this certainly isn’t an insignificant number, no matter the dire warnings from Intuit previously. If this tracked as a national program to covering something like a quarter or a third of taxpayers nationally, that’s a huge chunk of the population. Which, frankly, would explain all of that concern and lobbying efforts on the tax industry’s part.
There are some limitations here, which should be expected. Those chiefly revolve around income types and amounts.
Income types that cannot be reported with Direct File include income from payment apps, online marketplaces, or payment cards; income from independent contractor and gig work; income from rent, prizes, and awards; income from pension and retirement account distributions; allocated tips and unreported tips; and alimony.
Direct File is further limited by the amount of income. You can’t use Direct File if your wages were over $200,000, or $160,200 if you had more than one employer. Direct File also isn’t available to those who use the filing status “Married Filing Separately” and had wages of more than $125,000. For a married couple filing a joint return, there is a combined wage limit of $250,000.
There’s another limit related to how you obtain health insurance. Direct File won’t work if you bought health insurance from a HealthCare.gov marketplace or if you withdrew money from a health savings account. Other types of health insurance are supported.
But even with all of those caveats, millions of taxpayers are eligible just in the pilot program and that will only expand exponentially if this goes national. That’s no small thing.
And so now we wait and see how the pilot goes. I fully expect it to be successful. Not because I have some absurd faith in the federal government generally, or the IRS specifically. Instead, it’s because the point that has been made all along in the effort to get this program started is still true: for most taxpayers, tax prep should be incredibly simple and done with information that the IRS already largely has. If this isn’t a national program within a couple of years, the only surprise would be if that was not the result of an even more robust lobbying effort by the tax industry.