Those who watch financial news closely may have seen the exciting news that the IRS has launched a new tax prep pilot called IRS Direct File for taxpayers. I’ve had a number of readers ask for my opinion on IRS Direct File, with some wondering whether it would be worth their time and effort. So, I did some research and wanted to share an IRS Direct File review with everyone on what I found and cover pilot eligibility, launch date, how to participate in the pilot, state participation, income/credit/deduction limitations, pros, cons, and tax prep alternatives.
What is IRS Direct File?
IRS Direct file is a new limited-eligibility IRS tax prep pilot that launched in 2024. At its core, IRS Direct File has the goal of voluntarily allowing taxpayers to file their taxes online, for free, directly with the IRS. Direct File is built in-house at the IRS by a team of tax experts, product managers, software engineers, designers, and data scientists and is part of a broader IRS initiative to become better at servicing taxpayers.
When Does IRS Direct File Launch?
The IRS Direct File pilot is expected to launch around mid-March of 2024.
Where Can I Sign Up for the IRS Direct File Pilot?
As of this article’s publish date, there is not a way to sign up for the IRS Direct File pilot yet, but it will presumably be through the IRS Direct File site and/or the IRS account sign-in page.
What States Can Use IRS Direct File?
Taxpayers that are residents of these 12 states are able to participate in the IRS Direct File pilot in 2024:
- Arizona
- California
- Florida
- Massachusetts
- Nevada
- New Hampshire
- New York
- South Dakota
- Tennessee
- Texas
- Washington state
- Wyoming
If you are not a resident of one of these 12 states, IRS Direct File is not an option for you in the pilot stage.
Can you File State Tax Returns with IRS Direct File?
It’s important to note that at this time, those who participate in IRS Direct File cannot use the program to prepare and file state tax returns. This means that any participants who use IRS Direct File to prepare a federal tax return will also need to separately use another tax prep program to file their state return(s).
IRS Direct File Income, Credits, & Deductions Limitations
In the pilot stage, IRS Direct File is very limited in what it covers from an income, credits, and deductions standpoint. According to IRS Direct File, here is what it does and does not cover:
Income:
- W-2 wage income
- SSA-1099 Social Security
- RRB -1099 railroad retirement income
- 1099-G unemployment compensation
- 1099-INT interest income of $1,500 or less
Credits:
- Earned Income Tax Credit
- Child Tax Credit
- Credit for Other Dependents
Deductions:
- Standard deduction
- Student loan interest
- Educator expenses
The pilot is not an option for taxpayers that:
- Have other types of income, such as gig economy or business income
- Itemize deductions
- Claim other credits like the Child and Dependent Care Credit, Saver’s Credit or the Premium Tax Credit
Since it is not explicitly stated, I would also not expect IRS Direct File to cover:
- Any type of investment income beyond the 1099-INT of $1,500 or less (e.g. crypto, stocks, bonds, etc.)
- HSAs
- Real estate income
- Clean Vehicle Tax Credit
IRS Direct File Pros
The IRS Direct File pros are:
- Free E-File (if eligible): if you meet the eligibility requirements are within the limitations, using IRS Direct File could result in a free federal e-file.
- Altruism: participating in the program can help with a broader rollout to other taxpayers.
- You will be cool: hey – what’s cooler than being part of an IRS pilot, am I right?
IRS Direct File Cons
The IRS Direct File cons are:
- Limited state eligibility: taxpayers from only 12 states are allowed to participate at the moment.
- Late launch: the pilot does not launch until Mid-March.
- Limited income, credits, form coverage: the pilot is limited to very basic returns only at this point.
- Need to file twice: without the ability to simultaneously prepare state returns with IRS Direct File, participants will need to file a state return through a different tax prep alternative – which means you’ll have to prepare everything twice.
- ID.me requirement: participants need to verify their identity with ID.me.
- It’s a pilot: pilot could equal bugs/limitations.
IRS Direct File Alternatives
With the limitations noted above, if you are looking for alternatives to IRS Direct File, check out my best tax prep programs review and cheapest ways to e-file articles for a full breakdown. In them, you’ll find a number of ways to file your taxes for free and discounts for paid premium versions of all of the top tax prep programs. The alternatives are:
- 3rd Party Tax Prep Software: free or premium paid versions of H&R Block, TurboTax, TaxSlayer, TaxAct, Cash App Taxes, FreeTaxUSA, etc.
- FreeFile/FreeFillableForms: free tax prep options for those with basic returns, in certain states, with low income levels.
- MilTax: free tax prep software for active military and veterans.
Also, check out my DIY tax filing guide for some basics on how to do your own taxes.
IRS Direct File Review: Bottom Line
I think that IRS Direct File has a lot of promise and I’m hoping that the proper resources are put into it to make it a legit tax prep option for everyone nationwide. For 2024, at least, IRS Direct File is not an option as a replacement for other tax prep services, with all of the state, income, complexity eligibility requirements, as well as the fact that you cannot prepare state returns with it (and would need to re-file elsewhere all over again as a result). In this pilot stage it may be a fun thing to participate in for individuals who are fairly savvy with tax filing and would like to see an established IRS tax prep alternative in the future.