US: Direct File Pilot for Federal Tax Returns from the IRS

The IRS concluded the pilot of a new tax filing service called Direct File. This service allowed eligible taxpayers to file their taxes online for free, directly with the IRS.

Here's more about the pilot, rollout, features, and evaluation of the concluded pilot phase.

Background

The Inflation Reduction Act of 2022 directed the IRS to explore the feasibility of a free, direct e-file program known as "Direct File." On May 16, 2023, the IRS submitted its findings to Congress. The report revealed that most taxpayers are interested in a free, IRS-provided tax preparation and filing tool. Additionally, the IRS confirmed its technical capability to implement a Direct File program.

• Optional Use: Direct File was an additional option for filing taxes. It does not replace existing methods, and its use is not mandatory.
• In-House Creation: Developed by IRS teams, including tax experts, product managers, software engineers, designers, and data scientists.
• Partnership: Collaboration with the U.S. Digital Service and 18F ensures effective digital service development.
• Continuous Testing: Built with and for taxpayers, continuously tested to ensure ease of use.
• Accessibility: Free, mobile-friendly, available in English and Spanish, secure, and easy to use.
• Step-by-Step Assistance: Direct File guides users through the filing process with a clear checklist.
• Submission Confirmation: Users receive email confirmations upon submission and acceptance of their returns.
• Live Assistance: Real-time support from IRS Direct File customer service representatives is available.

Pilot Phase

• Limited Launch: The pilot started with a limited number of users for thorough testing and improvement.
• Gradual Increase: More taxpayers will gain access as the service proves successful.
• Service Confirmation: Successive phases will open based on performance.

Pilot Limitations

• Income Types and Credits: The pilot is limited to certain income types and credits. More details at directfile.irs.gov.
• Participating States: This offer is available to eligible taxpayers in Arizona, California, Florida, Massachusetts, New Hampshire, New York, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
• Interest from States: Many non-participating states have shown interest for future years.

Security Measures

• Identity Verification: To use Direct File, taxpayers must create an account and verify their identity using ID.me, meeting NIST standards.

IRS Direct File Pilot Conclusion

• Date Closed: April 21, 2024
• Action for Users: Sign in securely to your Direct File account to view and download your return if you filed with Direct File.
• Participants: 140,803 taxpayers
• States Involved: 12 states
• Data Collection: In-depth analysis of pilot data
• Stakeholder Engagement: Meetings with diverse groups and feedback from users, state officials, and representatives.

Updates from the Direct File Team: May 31, 2024:

• Permanent Option Announcement:
  • Implementation: IRS makes Direct File a permanent option for federal tax returns.
  • Availability: Plans to make it accessible for more taxpayers in the 2025 filing season.
  • Feedback-Based Decision: The decision follows positive feedback from various partners and a successful pilot.

IRS Commissioner Statement

• Focus Areas:
  • User Experience: Continuous improvement of product and state tax system integration.
  • Accuracy and Credits: Ensuring taxpayers file correctly and receive entitled refunds.
  • Improving Filing Experience: Making tax filing easier and faster for taxpayers.

Future Plans: Permanent Implementation

• Expansion Goals:
  • More Taxpayers: Increase eligibility for Direct File.
  • State Partnerships: Open to all states partnering in the next filing season.

Broadening Eligibility

• Scope Expansion: Gradually include more common tax situations, particularly those affecting working families.
• Executional Certainty: Focus on accuracy and user experience, leveraging lessons from the pilot.

Upcoming Announcements

• 2025 Expansion Details: Additional information on the expansion will be shared in the coming months.

Sources/ recommended read:

Website: Visit Direct File on IRS.gov for more information.