The IRS recently released an “important update” for its Direct File program, just one week before the federal tax deadline of April 15. This free tax filing program has been in pilot phase since March 12, fully open to certain filers in 12 states. The new update allows users to import essential details that are required to verify returns before filing. This step is crucial when e-filing taxes, as it ensures the accuracy and completeness of the return.
One of the main issues with Direct File returns has been the manual input of verification details, such as the previous year’s adjusted gross income or temporary pin. This step has often led to errors and rejected returns. However, the recent update now allows users to import these details directly from the IRS, minimizing the chances of errors. This new feature streamlines the filing process and reduces the burden on taxpayers, making it easier to file accurately and on time.
Direct File eligibility is limited to individuals with simple tax returns for the current filing season. This includes those with only Form W-2 wages, Social Security retirement income, unemployment earnings, and interest of $1,500 or less. Self-employed individuals, gig economy workers, and those with contract income reported on Form 1099-NEC are not eligible for Direct File. To qualify, taxpayers must also claim the standard deduction for their filing status, which is $13,850 for single filers and $27,700 for married couples filing jointly for the year 2023.
The Direct File program accepts only a few tax credits, such as the earned income tax credit, child tax credit, and credit for other dependents. It also allows deductions for student loan interest and educator expenses. These limitations are in place to ensure that the program is focused on individuals with simple tax situations and can process returns efficiently. The goal is to provide a streamlined process for eligible filers and reduce the burden of tax filing.
The Treasury Department estimates that one-third of federal income tax returns could use Direct File this season, with approximately 19 million taxpayers currently eligible for the program. Despite these numbers, the agency hopes to see only 100,000 filings this season, representing a small fraction of eligible filers. However, with 60,000 taxpayers already using Direct File and an expected increase in volume before the deadline, the program is gaining traction and becoming more widely used.
Overall, the recent updates to the Direct File program by the IRS aim to simplify the tax filing process for eligible individuals and reduce common errors that lead to rejected returns. By allowing users to import verification details directly from the IRS, the program streamlines the filing process and minimizes the burden on taxpayers. While there are limitations to the program in terms of eligibility and tax situations covered, it represents a step towards more efficient and user-friendly tax filing options for eligible individuals.