Direct File Pilot Program to Benefit 19 Million TaxpayersIRS Launches Free Direct File System for Tax Returns

After a period of extensive testing, the IRS has launched a new electronic system for filing tax returns directly to the agency.

The program, known as Direct File, is an online tool that is free for taxpayers in 12 selected states with simple W-2s and standard deductions. It will also have a Spanish version, which will be released on Tuesday at 1 p.m. Eastern Time.

"The expansion of Direct File is a significant achievement," said IRS Commissioner Daniel Werfel during a press conference on Tuesday. With the official start of tax season on January 29 and the filing deadline on April 15, taxpayers now have the option to electronically file their returns directly with the IRS, at no cost.

According to the Treasury Department, approximately one-third of all federal income tax returns could be completed using Direct File, potentially benefiting 19 million taxpayers this tax season. So far, around 20,000 individuals have participated in the pilot program, and the IRS expects this number to increase to 100,000 in the upcoming weeks. Eligible taxpayers from Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, Arizona, Massachusetts, California, and New York can take advantage of Direct File. However, it can only be used for federal income tax filings, and individuals from states that require filing state taxes will need to do so separately.

"This tool will offer millions of Americans an effortless and cost-free way to file their taxes, aligning with President Biden's commitment to reducing expenses," said National Economic Advisor Lael Brainard. One of the highlights of Direct File is its live chat feature, which allows taxpayers to communicate with the IRS while filling out their forms.

The Direct File pilot is part of the IRS's efforts to develop a new government service that could potentially replace the use of commercial tax preparation software, such as TurboTax. The program is designed to be user-friendly, providing a step-by-step guide to answer simple questions. In response to the launch of Direct File, Intuit spokesman Derrick Plummer expressed concerns that this "thinly veiled scheme" will end up costing taxpayers billions of dollars, even though there are already free tax preparation options available.

While there are organizations that offer free online tax assistance for individuals with certain income limits and fillable forms on the IRS website, these forms can be complex and still require taxpayers to calculate their tax liability. When asked about the future of Direct File, Werfel stated that he did not want to make any premature conclusions, but positive feedback from users has been encouraging.

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