The IRS Direct File pilot, which was new this tax year, has direct filing of tax returns on the IRS website. It is a success and will be expanded. Basic returns are filed free by the taxpayer. (IRS Direct File is different from previous years where the IRS teamed up with tax preparers to do tax returns.)
The Treasury Inspector General for Tax Administration released an interim report including the following image, which details which returns are eligible for Direct File. Currently it’s quite basic, however should be fine for many taxpayers. You can’t use Direct File if you have self-employment, brokerage, or pension income, itemize rather than taking the standard deduction, and – this is a big one – have Marketplace Insurance (Obamacare.) Marketplace Insurance requires the dreaded 1095-A form. This means a whole lot of calculations to determine if the taxpayer owes or gets a refund based on previous year’s income compared to current year income. It’s complicated!
This initial pilot was in the seven states with no income tax (Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming.) It also includes five states with income tax or tax credits (Arizona, California, Massachusetts, New York, and Washington.)
There were a few amusing oopsies:
For example, we identified an open ticket showing a known issue with Direct File allowing biological dependents to be older than the parent(s) listed on the tax return.
I’m a tax pro and hope this program expands. Millions will be able to file free.