Don't Mess With Taxes

UPDATE, Sept. 5, 2025: Has your state joined Direct File? Check out this special Direct File 2025 Participating States page.

Feeling adventurous this tax filing season? If you live in one of 12 states, you can be a guinea pig for the Internal Revenue Service's Direct File pilot program.

Direct File will be available when the 2024 tax filing season officially opens on Jan. 29.

The participating states are Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming.

This IRS-offered test of free tax preparation and e-filing will be available via smartphone, laptop, tablet, or desktop computer. There are English and Spanish versions.

However, the exact availability timing is in flux. When the IRS this week announced the start of the 2024 filing season, it noted that the Direct File pilot will be rolled out in phases as final testing is completed. The program is expected to be widely available in mid-March to eligible taxpayers in the participating states.

Direct File's genesis: The IRS' entry into the actual tax preparation and e-filing world is not one Uncle Sam's tax agency actually wanted. But it is a move that many, including National Taxpayer Advocate Erin M. Collins in her January 2023 annual report to Congress, argue is overdue.

Federal lawmakers are among those who have long pushed for a no-cost tax filing system where Americans electronically prepare and submit their annual returns directly to Uncle Sam's tax agency.

This Capitol Hill contingent cited data that consistently showed the IRS Free File partnership program with the tax software industry was just not that popular.

They were emboldened further after investigative journalists at Pro Publica reported in 2019 that some major tax software companies manipulated online searches to keep eligible taxpayers away from using the IRS-based Free File option.

Representatives and Senators who advocated for a totally IRS controlled free filing system got their way when the Inflation Reduction Act of 2022 was enacted. The new law ordered the IRS to explore ways taxpayers can cut out the filing middlemen, those tax software companies that millions have relied on for years.

Direct File is the result of the Inflation Reduction Act's mandate. This filing season is the new program's first test.

A dozen states to start: As is the case with most new programs, both within an outside the government, things are off to a slow start. That's why, as noted earlier, the IRS doesn't expect Direct File to be fully operational in all the test states until just about a month before Tax Day 2024.

Taxpayers in a dozen states will be the IRS' real-life testers. Most of them are in states that don't collect a personal income tax on wage income. They are Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Tax-savvy readers have already noted that New Hampshire does tax interest and dividend income. It's a flat 5 percent rate for 2023 taxes, dropping to 4 percent this tax year. The Granite State tax is phasing out, and will end as of Jan. 1, 2025.

And some higher-earning Washington state residents must pay the Evergreen State's 7 percent capital gains tax.

But basically, taxpayers in these eight states, and especially those who will be eligible to use Direct File (more on this shortly), only worry about filing federal tax returns every year.

State tax filing test, too: It's a different tax story for the other four Direct File pilot states, where residents do deal each year with state income tax filing.

The IRS' filing system test will direct taxpayers in Arizona, California, Massachusetts, and New York to a state-supported tool that they can use to submit their state tax returns.

And while most Washington state taxpayers don't owe state tax, they also will be directed to a site where they can apply for the state's Working Families Tax Credit when they Direct File their federal return.

The four states that do collect an individual income tax from their residents were early to sign on to the Direct File pilot. Their participation was announced when the IRS provided an update on the option last October.

And since most state do collect taxes from their residents, getting the buy-in of California and New York, home to two of the largest taxpaying populations in the country, was a major Direct File accomplishment.

The IRS' ability to integrate state tax filings in these four test states into Direct File could eventually make the new option more appealing to more taxpayers nationwide.

Who cannot Direct File: Even if you clear the state residency hurdle, there are some additional limits on who can use Direct File.

First, the IRS pilot program is not an option for any taxpayer who has income other than a salary for which Form W-2 is issued. This prohibits those who have gig or business income.

You also cannot use Direct File if you itemize deductions.

It's also not open to those who claim the Child and Dependent Care Credit, the Saver's Credit, or the Affordable Care Act Premium Tax Credit.

Who can Direct File: Those restrictions notwithstanding, plenty of other filers in the dozen Direct File pilot states will be able to test the new system.

You can Direct File if your only income is —

• Wage income that's reported on Form W-2;
• Social Security and Railroad Retirement income, reported on SSA-1099 or RRB-1099, respectively;
• Unemployment compensation, reported on 1099-G; and/or
• Interest income of $1,500 or less, reported on 1099-INT.

Direct File users are allowed to claim some tax credits. They are the Earned Income Tax Credit (EITC), the Child Tax Credit, and the Credit for Other Dependents.

As far as deductions, you are Direct File eligible if you claim the standard deduction. You also can be part of the pilot program if you take the above-the-line deductions for student loan interest and/or educator expenses.

Accessing Direct File: If you are able to use Direct File to prepare and e-file your 2023 tax return, you'll have to verify your identity and use one of the IRS-approved secure sign in methods.

The IRS will allow you access to most tax tools with one account using the same login and password. So if already have an IRS online account, you can use it for the Direct File pilot.

If you don't have an IRS online account, you'll have to create one to verify your identity. Once your identity is verified, you can start preparing your return with Direct File.  

Opening an IRS online account also will benefit Direct Filers who discover that instead of getting a tax refund, they owe the U.S. Treasury.

With an online account, you can not only view key data from your most recently filed tax return, but also make payments if necessary from a bank account or by debit or credit card.

An option, not a requirement: Finally, just because you're in one of the Direct File pilot states and meet the other qualifications, that doesn't meet you have to use it.

The IRS says no one is required to participate in the Direct File pilot. The agency also emphasizes that the tax prep and e-filing test doesn't replace any of the existing options for filing. (Preview: I'll have more on these other tax filing options in tomorrow's Don't Mess With Taxes post.)

If, however, you are interested in giving Direct File a go, you can get more information at the IRS.gov Direct File page, as well as the agency's closer look at the IRS Direct File pilot.

You also might find these items of interest:

• 5 tax tips for Free File users
• Letting the IRS figure your taxes
• IRS sets paperless tax goals for 2024, 2025
• 13 states could participate in IRS' 2024 Direct File pilot

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