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TAX SEASON OPENS JAN. 29, BUT NEW IRS DIRECT FILE TOOL NOT COMING UNTIL MARCH

Tax season opens Monday, but New Yorkers who want to use the new IRS Direct File
system will have to wait until March to file. Credit: AP/Susan Walsh

By Chris Kahnchris.kahn@newsday.comUpdated January 29, 2024 8:51 am

The IRS is moving further into the tax-prep business this year with a free
filing system that could save taxpayers from hiring accountants or paying
for commercial tax-prep software.

The agency begins accepting returns Monday, but the pilot Direct File system
won't be widely available until mid-March, Internal Revenue Service officials
said last week. New York is one of 12 states chosen for the pilot program.

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The IRS is moving further into the tax-prep business this year with a free
filing system that could save taxpayers from hiring accountants or paying
for commercial tax-prep software.

The agency begins accepting returns Monday, but the pilot Direct File system
won't be widely available until mid-March, Internal Revenue Service officials
said last week. New York is one of 12 states chosen for the pilot program.

Initially, only taxpayers with relatively simple financial situations will be
eligible to use the new system. But if it takes off, the government-run tax tool
could provide some serious competition for the $33 billion tax prep
industry. After its soft launch this year, the IRS may expand Direct File in the
future to include more taxpayers. 



Several hundred thousand tax filers are expected to participate in the pilot
program this year.

Direct File will be offered in English and Spanish and should be accessible
through a variety of devices including smartphones, laptops, tablets and desktop
computers. Its goal is to give taxpayers an easier, more user-friendly way to
file their federal taxes and to help them claim tax credits that may otherwise
be forgotten. The IRS noted last year in a report to Congress that 5 million
eligible taxpayers fail to claim an Earned Income Tax Credit every year.

The system uses an interview-based approach, much like commercial tax-prep
tools, asking the taxpayer a series of questions that helps it generate the
return. It also has a live chat option that users can select to contact IRS
staff for technical assistance and some limited guidance on tax law.

Direct File is not meant to replace other means of tax filing. The IRS still
accepts returns that are filed the traditional ways, including those prepared on
paper and sent through the mail as well as returns sent electronically through
the agency’s existing Free File system, which offers guided filing through
third-party software providers for taxpayers with adjusted gross incomes of
$79,000 or less. Taxpayers also can keep using commercial software and
professional tax preparers.

New York is one of 12 states chosen for the Direct File pilot. Credit: IRS

Financial services firms Intuit Inc. and H&R Block Inc. have sharply criticized
Direct File this year as a waste of money. 

H&R Block said in a statement that "the IRS should focus additional funding on
improving its existing services for taxpayers." A spokesperson for Intuit, which
makes Turbo Tax software, said that while tax prep services are driven to
maximize their customers' refunds, the IRS is focused instead on generating
revenue for the government.

The IRS Direct File service, Intuit spokesperson Tania Mercado said, “could be a
recipe for overpaying.”



People who use Direct File must accept the standard deduction and report only
limited types of income like W-2 wages, Social Security payments and
unemployment compensation. They also cannot report more than $1,500 in interest
income.

The system also won’t work for filers who plan to claim tax credits other than
the Earned Income Tax Credit and tax credits for children and dependents.

The IRS is expected to announce the launch of Direct File for New York in
mid-March. Taxpayers who want to file earlier than that should use other
methods. 


WHO IS ELIGIBLE FOR DIRECT FILE?

Eligibility this year is limited to people who: 

 * were residents in 2023 of New York, Arizona, California, Florida,
   Massachusetts, Nevada, New Hampshire, South Dakota, Tennessee, Texas,
   Washington state and Wyoming
 * plan to take the standard deduction
 * will report only W-2 wages, Social Security and railroad retirement income,
   unemployment compensation, and interest income of $1,500 or less
 * do not plan to claim tax credits other than the Earned Income Tax Credit and
   tax credits for children and other dependents

By Chris Kahn
chris.kahn@newsday.com
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