What's New with the IRS Direct File Program for This Tax Season

The way many Americans file their taxes is undergoing a change. For this year's tax season, the IRS has made significant changes to its Direct File program, a free, government-run option for filing federal taxes. After a successful pilot program, Direct File is now a permanent option, and it's expanding to include more taxpayers in more states.

Here’s a breakdown of what the changes are and how they might affect you.

What is the IRS Direct File Program?

Direct File is a free, web-based service that allows eligible taxpayers to prepare and e-file their federal tax returns directly with the IRS. It's a new option that exists alongside other free filing options, such as IRS Free File (a partnership with private tax software companies) and the Volunteer Income Tax Assistance (VITA) program.

The program's goal is to simplify the filing process for people with straightforward tax situations, offering a free, user-friendly platform with live chat support from IRS specialists.

The Good: What's Expanding and Improving

For this tax season, the IRS Direct File program is seeing some significant improvements that will benefit many taxpayers.

• More States: The program is expanding from the 12 states in the pilot to include 25 states. This means a much larger population of taxpayers can now use Direct File. The new states include Alaska, Connecticut, Idaho, Illinois, Kansas, Maine, Maryland, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, and Wisconsin.

  
  

• More Tax Situations Covered: Direct File is now equipped to handle a wider range of tax situations. This includes:

  • More Income Types: The program now supports Form 1099-R for retirement income.

  • More Credits: The list of supported credits has grown to include the Child and Dependent Care Credit, the Premium Tax Credit, the Credit for the Elderly and Disabled, and the Retirement Savings Contributions Credit.

  • More Deductions: You can now also deduct Health Savings Account (HSA) contributions in addition to the standard deduction, student loan interest, and educator expenses.

  
  

• Better User Experience: The IRS has implemented new features to make filing easier. This includes a data import tool that can automatically pull in information from your IRS account, such as your details and some W-2 information. There's also a new chatbot to help guide users through the eligibility process.

  
  

• Live Chat Support: For the first time, Direct File's live chat support now offers additional authentication and verification, allowing customer service representatives to provide more detailed assistance to users.

  
  

• State Filing Integration: For states that have a state income tax and are participating, the Direct File system will now automatically guide you to the state's free filing tool after you complete your federal return. This helps streamline the process for taxpayers who need to file both.

The Bad: Limitations You Need to Know

While the Direct File program has made great strides, it's not a universal solution for everyone. There are still important limitations to be aware of:

• Eligibility Restrictions: The biggest hurdle for many is eligibility. To use Direct File, you must have lived and worked in one of the 25 participating states for the entire year.

  
  

• Simple Tax Situations Only: The program is designed for straightforward returns. If your tax situation is more complex, you won't be able to use it. This includes:

  • Itemizing Deductions: If you plan to itemize your deductions instead of taking the standard deduction, Direct File is not an option for you.

  • Other Income: It does not support other common types of income, such as gig economy income, rental income, or business income reported on a Schedule C.

  • Specific Credits and Deductions: While the program has expanded its supported credits and deductions, it still doesn't cover many, such as education credits, adoption credits, or deductions for IRA contributions.

  
  

• Federal Only: Direct File is only for federal returns. While it helps connect you to state tools, it doesn't automatically prepare or file your state return for you in most cases.

The Bottom Line for This Tax Season

For millions of Americans, the expanded IRS Direct File program is a huge win. It provides a truly free and secure way to file a simple federal tax return, bypassing the need for commercial tax software that may charge for extra features. The new integrations and live support are valuable improvements that will make the process easier and more accessible.

However, if your financial life involves more than a simple W-2, or if you live in a non-participating state, you will need to use an alternative filing method. For those with an adjusted gross income of $84,000 or less, the traditional IRS Free File program remains a great option, offering free access to commercial tax software.

Before you begin filing, it's a good idea to visit the IRS Direct File website to use their eligibility checker. This will help you quickly determine if the program is the right fit for your specific tax situation this year.