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IRS' free Direct File officially opens to all eligible taxpayers

The first Direct Filer was a satisfied IRS employee who got a $400 tax refund. However, GOP opponents of the program say it was wrongly established and misspends tax dollars.

Direct electronic tax prep and filing with IRS

Following a soft launch, the Internal Revenue Service today, March 12, officially opened Direct File to all eligible taxpayers in the pilot program's 12 participating states.

The no-cost tax preparation and e-filing program cuts out the commercial tax middleman, allowing certain taxpayers able to complete their annual filing task by dealing, as the name says, directly with the IRS.

Right now, that's only taxpayers in 12 states with relatively simple federal tax situations.

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

To qualify for Direct File, taxpayers must fall into the following categories.

  • They report income earned from jobs that generate a Form W-2; including taxpayers with more than one job with W-2 wages.
  • They claim Earned Income Tax Credit, Child Tax Credit, and the Credit for Other Dependents.
  • They claim the standard deduction and deductions for educator expenses and student loan interest.
  • The lived in the same state for the entire calendar year 2023.

The Treasury Department estimates that around 19 million taxpayers will be eligible for Direct File.

While that's a tiny portion of the nearly 129 million tax returns the IRS expects to receive this filing season, the agency is pleased with Direct File results so far.

"The early results from Direct File have shown taxpayers like the ease and convenience of the tool, and moving into the full-scale launch of the pilot will give more taxpayers the chance to use this free option," said IRS Commissioner Danny Werfel in announcing the program's expansion beyond the test phase.

"Expanding Direct File as the tax deadline approaches will provide more taxpayers a way to file directly with the IRS for free, and it will give us more valuable information to assess this pilot," added Werfel.

If you live in one of the dozen participating states and have an uncomplicated tax return, check out Direct File to see if it will work for your tax filing needs.

First Direct Filer refund: Federal employees were among the first to test Direct File.

And the very first Direct Filer, a 37-year-old IRS employee from the Austin, Texas, exurb of Kyle, Texas, got a $400 refund.

Dixie Warden is just the type of taxpayer the program targets. She has worked for the IRS in a variety of roles for the past 16 years, but not in the tax side of the agency. Currently, she's a human relations specialist with the agency.

She used her home laptop to access Direct File, which she told AP News was "just so darn easy to understand."

Direct File opponents: Warden's assessment, however, is not likely to win over Direct File opponents, which go beyond the commercial software companies that offer their own free versions.

During a February hearing before the House Ways and Means Committee, Republican representatives questioned whether Direct File actually is legal.

The lawmakers argue that the IRS went beyond the Congressional directive to study whether an agency administered tax preparation and filing program is feasible. .

Rep. Adrian Smith asked Werfel at that hearing about the IRS authority to create Direct File. The Nebraska Republican was not pleased with Werfel's reply that the agency has "a responsibility and an authority to offer taxpayers different approaches for how to meet their tax obligation."

Instead, Smith and his GOP colleagues say the directly-run IRS filing program turns the agency "into a tax filer, preparer, and auditor without congressional authority."

In addition to the question about the creation of Direct File, opponents also are concerned about the cost. They argue that the IRS should instead spend the program's money to promote Free File.

Although Free File saw a bump in usage in 2020, it's never been widely popular. An April 2022 Government Accountability Office report found that while 70 percent of taxpayers qualified to use Free File, fewer than 3 percent of taxpayers used it.

Congressional purse strings: The money question is the key one. Regardless of how well received Direct File is, if the agency doesn't get future funding to continue and expand it, it's 2024 debut could be the last of it.

The IRS used additional $80 billion it got under the Biden Administration's Inflation Reduction Act. Republicans, however, continue to chip away at that money.

The debt ceiling and budget package included GOP demands that IRS funds be cut by $1.4 billion. A separate agreement will claw back another $20 billion from the IRS over the next two years.

Any future IRS funding, or cuts, rest on which party ends up in control of Capitol Hill after November's election.

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