IRS Direct File is a good start to free federal tax filing, but it needs to expand quickly| Trending Viral hub

IRS Direct File will be fully available to all eligible taxpayers in a dozen states on March 12, with just over a month to go file your federal tax return.

Direct File has had a conservative implementation in all accounts. The IRS launched its pilot program for Direct File on January 29, but only for a preselected group of government employees to file their taxes.

In the following weeks, taxpayers were able to sign up to use Direct File in waves, and the IRS made sign-ups available to new users in short bursts before closing it again. Now, the IRS is ready to remove the training wheels.

I was able to test the software because I live in New York, one of the 12 states where Direct File accepts federal tax returns in 2024. Because The Many Restrictions of Direct File As for income, however, I was not able to complete a return this year with the service.

But free archive software It’s so easy to use that I can see myself and others using Direct File in the future as the program expands the tax situations it covers. For now, it is far behind the industry leaders.

What is it like to use IRS Direct File?

IRS Direct File is a clean and simple online tax preparation software. It’s basic. But what it offers, it does well.

Before using Direct File, you must set up an ID.ME account to verify your identity. This preliminary process can have many errors. I experienced some difficulties both when uploading photos of my driver’s license and when recording a selfie using third-party technology. Signing in to Direct File with ID.ME afterwards requires standard two-factor authentication using your phone.

ID.ME Two-Factor Authentication for IRS Direct File

Screenshot by Danni Santana/CNET

Once you’re in Direct File, you’ll be greeted by a five-step tax filing checklist: “You and Your Family,” “Income,” “Deductions and Credits,” “Your 2023 Taxes,” and “Complete.” .

In You and Your Family, the software will ask for your personal information, such as your address, occupation, and date of birth. Please note that when entering your mailing address you cannot abbreviate words such as street, unit, or avenue that are commonly found in home addresses. This will generate an error message.

Each time you start a section, Direct File will preview the information it asks for. You’ll also find hyperlinks that open pop-ups with contextual help as you go. At the end of each section or form you add, Direct File will show you a summary of what you entered to verify your work.

IRS Direct File tells me what it will ask me in the About You section

Screenshot by Danni Santana/CNET

This is important because, with Direct File, you will enter most of your tax information manually. Only some questions will be answered by clicking the drop-down lists or answering yes or no questions. It feels very similar FreeTaxUSA and Taxes on cash applications Thus. There is also no option to upload the W-2 or the option to upload last year’s tax return to get started.

The IRS has been upfront about Direct File’s limitations this year. The new program has some major loopholes, including income limits and limits on types of credits you can claim. Additionally, you can use this filing option only if you are taking the standard deduction.

Two other glaring holes that Direct File makes very clear to the user as they complete their return is that the software accepts federal returns only from 12 US states: Arizona, California, Florida, Massachusetts, New Hampshire, New York, Nevada and South Dakota. , Tennessee, Texas, Washington and Wyoming. Direct File also only allows you to report income from a handful of sources:

  • Income from an employer (Form W-2)
  • Unemployment Compensation Income (Form 1099-G)
  • Social Security o railroad retirement benefits (form SSA-1099)
  • Income of $1,500 or less from interest, U.S. savings bonds, or Treasury obligations (Form 1099-INT)

If your answers indicate that you live in a state outside of the 12 listed above or that you need to report income from an unsupported tax form, Direct File will display a warning message with a link to this IRS page detailing other ways for you to file your taxes this year.

IRS Direct File also works to make sure you don’t file an incomplete tax return. It asks about your sources of income per tax form and also asks questions about your tax situation to make sure you have all the forms you need. If one of the forms you need is a 1099-DIV, 1099-R, or any other form not supported by IRS Direct File, you will receive a similar warning message.

IRS Direct File shows me an error message because I do not qualify for the program.

Screenshot by Danni Santana/CNET

While this extra step will seem a little unnecessary to experienced DIY tax filers, it can be very helpful for newcomers. I’d even say it’s similar to TurboTax in the way it goes the extra mile to hold your hand in this scenario.

Once you’re ready to file, Direct File will show you a page with your total federal tax return or the amount you owe. I imagine it feels a little different when the IRS tells you how much you owe, rather than a third party. Direct File also explains how the software calculated the number. If you receive a return, DIrect File allows you receive your refund via direct deposit or mail.

Other notable features of IRS Direct File

IRS Direct File’s contextual help is on par with most online tax preparation software. But its chat function is very limited.

When you click Chat in the upper right corner of the screen, the software opens a new tab where you type your name and a general question about using Direct File. However, you cannot ask questions about your tax situation. In fact, Direct File explicitly tells you not to include any financial information in your question.

The IRS Direct File chat feature allows me to enter my name and a general question about using the service

Screenshot by Danni Santana/CNET

“We are not your tax advisor and cannot help you with specific questions about taxes you may owe or eligibility for credits,” the page reads. This is a big step by the IRS to make it clear to users that Direct File only serves as a tax preparation service.

IRS Direct File is only available in English for now. But the agency is also working to develop a Spanish version. Currently, the software allows you to switch between English and Spanish, which triggers this pop-up explaining that the latter is available.

There will soon be a Spanish version of IRS Direct File

Screenshot by Danni Santana/CNET

What is missing from IRS Direct File?

When testing IRS Direct File, I was impressed with how easy the software is to use. The service offers clear instructions and gives you a good idea of ​​how close you are to completing your return.

But it’s missing some components that I expected to see as part of the launch. To start, you should have a widget at the top of your screen that updates the size of your return or the amount you owe as you enter your tax information. It seems like all online tax filing software programs have this. Direct File should do it too.

Direct File forces you to complete your tax return in a specific order. While you can go back to any part of your return you completed through the checklist, you can’t jump to deductions and credits, for example. Not all online tax filing programs get you ahead, but I’m a big fan of the ones that do.

One thing that surprised me was that Direct File also doesn’t integrate the full library of IRS tax resources. I was expecting to see a designated “Help” tab to refer to while taking the test. After all, the IRS helps taxpayers “understand and comply with their tax responsibilities and enforce the law.” according to their website.

The contextual help built into tax software is solid, but in our opinion, IRS Direct File should be the online tax software with the best contextual help and resources. It still may be in the future. Currently, that designation will TurboTax, H&R Block and FreeTaxUSA.

Finally, the IRS has a great opportunity in the coming years to integrate users’ personal and tax information into Direct File. With such a conservative and careful implementation in the first year, this probably wouldn’t be feasible in 2024. But because the IRS already receives tax forms from your employer, I can reasonably see a future where your basic personal information and W-2 is filed automatically for you after creating an account. The integration would give Direct File a competitive advantage in the market, in addition to its free price.

Is IRS Direct File Right for Me?

IRS Direct File is not a good option for most people this year. That’s not because of the performance of the tax software, but rather because of barriers imposed by the IRS, such as the fact that only eligible taxpayers in 12 states can use the program this year.

But if you live in one of those 12 states, like New York or California, only have to file a W-2 and a 1099-INT and claim the standard deduction, there’s a good chance you’ll qualify. Be sure to compare your tax situation with the Forms and schedules that IRS Direct File accepts this year.

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