IRS adds ‘important update’ for free Direct File pilot

With a week to go until the April 15 federal deadline, the IRS released a “significant update” to Direct File, the agency’s free tax filing program.

As of March 12, the pilot program is fully open to select filers in 12 states – and Direct File now allows users to import key details needed to verify returns before filing them.

When you file your taxes electronically, you validate your return before filing by entering the prior year’s adjusted gross income or the prior year’s temporary PIN. Tax software usually adds this information for returning customers. But new users have to add it manually.

This key step has been the main problem preventing Direct File returns from being successfully filed, according to a Treasury official.

But as of Monday, Direct File users can now import these audit details from the IRS, which could minimize the common error. Taxpayers can only access details from their own IRS account, which has identity verification, a Treasury official said.

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“This important update will allow Direct File users to take advantage of information the IRS already has to further simplify the filing process,” said Bridget Roberts, who leads Direct File at the IRS.

Direct File will remain open for rejected returns until April 20, a Treasury official said.

Another common reason for abandoning Direct File filings is tax situations not covered by the pilot, such as 1099 forms, according to a Treasury official.

“Direct deposit eligibility is limited to those with simple tax returns this filing season,” Deputy Treasury Secretary Wally Adeyemo said on a press call in March. “But a large percentage of Americans qualify.”

IRS Direct File pilot states include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.

The pilot will only accept Form W-2 wages, Social Security retirement income, unemployment benefits and interest of $1,500 or less. This excludes filers whose contract income was reported via Form 1099-NEC, gig economy workers, or self-employed filers.

To qualify, you must claim the standard deduction, which is $13,850 for single filers and $27,700 for married couples filing jointly for 2023.

Direct File only accepts a few credits: the Earned Income Tax Credit, the Child Tax Credit, and the Other Dependents Credit. The software also accepts deductions for student loan interest and teacher expenses.

In March, the Treasury Department estimated that a third of federal tax returns could use Direct File this season and that 19 million taxpayers could currently be eligible.

The agency hopes to see 100,000 cases this season, a senior administration official said in March. This represents approximately 0.5% of these eligible filers. So far, about 60,000 taxpayers have used Direct File and the agency expects the volume to increase before the deadline, according to a Treasury official.