IRS will start piloting its free TurboTax alternative in 2024

It looks like the Internal Revenue Service (IRS) truly was working on a free TurboTax alternative like earlier reports had claimed. The US tax authority has announced that it will start pilot testing its new Direct File program for the 2024 filing season, though it will initially be available for select taxpayers in 13 states only. During its pilot period, Direct File will only cover individual federal tax returns and won't have the capability to prepare people's state returns. That's why 9 out of the 13 states testing it — namely Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — don't levy state income taxes. 

Arizona, California, Massachusetts and New York, the other four states in the list, worked with the IRS to integrate their state taxes into the Direct File system for 2024. The IRS says it invited all states to join the pilot program, but not all of them were in a position to participate "at this time." In addition to being only available in certain locations, Direct File will only be accessible by people with "relatively simple returns" at the beginning. It will cover W-2 wages and tax credits like the Earned Income Tax Credit and the Child Tax Credit, for instance, but it will not cover self-employment income and itemized deductions. However, the agency is still finalizing the tax scope for the pilot, so it could still change over the coming months. 

Based on the screenshots the IRS shared with The Washington Post, taxpayers will only have to answer a questionnaire to be able to file their taxes directly, simplifying the process without having to pay for a third-party service. An IRS official told the publication that select eligible taxpayers in the aforementioned states will start getting invitations to use the service sometime around mid-February next year. The agency says it will begin with a small group of taxpayers before expanding access to more and more people as the filing season for the 2023 federal tax return progresses.

"This is a critical step forward for this innovative effort that will test the feasibility of providing taxpayers a new option to file their returns for free directly with the IRS," IRS Commissioner Danny Werfel said in a statement. "In this limited pilot for 2024, we'll be working closely with the states that have agreed to participate in an important test run of the state integration. This will help us gather important information about the future direction of the Direct File program."

The IRS is hoping to gather data and feedback during the pilot to be able to analyze how effective Direct File is. It's also hoping to identify areas of improvement for a "potential large-scale launch in the future."

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