personal finance

IRS adds ‘important update’ for free Direct File pilot as federal tax deadline approaches

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With one week until the April 15 federal tax deadline, the IRS has released an “important update” for Direct File, the agency’s free tax filing program.

Since March 12, the pilot program has been fully open for certain filers in 12 states, and Direct File now allows users to import key details needed to verify returns before filing.

When e-filing your taxes, you validate your return before filing by inputting the previous year’s adjusted gross income or the prior year’s temporary pin. Tax software typically adds this info for returning customers, but first-time users must add it manually.

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

But as of Monday, Direct File users can now import these verification 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 simplify the filing process even further,” 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.

Who qualifies for the Direct File pilot

Another common reason for abandoned Direct File returns has been tax situations not covered by the pilot, such as Forms 1099, according to a Treasury official.

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

The 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 earnings and interest of $1,500 or less. This excludes filers with contract income 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 creditchild tax credit and credit for other dependents. The software also accepts deductions for student loan interest and educator expenses.

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

The agency hopes to see 100,000 filings this season, a senior administrative official said in March. That works out to roughly 0.5% of those eligible filers. Roughly 60,000 taxpayers have used Direct File so far and the agency expects volume to increase ahead of the deadline, according to a Treasury official.

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