The Internal Revenue Service (IRS) will be launching a pilot program called Direct File, which allows a limited number of taxpayers in 12 states to calculate and submit their tax returns directly to the government without using commercial tax preparation software. The program aims to simplify the filing process for low- and middle-income earners, who typically claim a standard deduction.

The Direct File pilot program will be rolled out in stages, starting with government employees who have been invited to participate in the first weeks. In February and March, the program will expand to include additional eligible taxpayers in certain states. The IRS intends to use the initial rollout in the 2024 tax season to gather information and fine-tune the program.

It is important to note that the Direct File program is distinct from the agency's existing Free File program, which provides commercial software for free to low- and middle-income earners, as well as fillable forms for all taxpayers. However, the current forms can be complex, and taxpayers are still required to calculate their own tax liability.

The IRS aims to streamline the tax filing process with the Direct File program, offering taxpayers a step-by-step walkthrough of straightforward questions. Both English and Spanish language options will be available to users. The agency estimates that several hundred thousand taxpayers will be eligible for the initial rollout.

The pilot program will be available to taxpayers in certain states, including Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming, all of which do not have a state income tax. Additionally, Arizona, Massachusetts, California, and New York, which do have a state income tax, will also be part of the program, with state tax agencies assisting individuals in filing their state taxes.

IRS Commissioner Danny Werfel highlighted the importance of continuous testing and resolving issues encountered throughout the Direct File pilot program. He emphasized the program's significance in aligning the IRS with modern tax administration practices.

Taxpayers can check the IRS website to determine their eligibility for the Direct File program and sign up for notifications once the program is live for them. Nina Olson, the executive director of the Center for Taxpayer Rights, praised the IRS's approach to starting the program on a small scale, stating that it is a step towards bringing the IRS into the 21st century.

However, commercial tax preparation software firms that have profited from charging users for their services view the Direct File program unfavorably. Tania Mercado, a spokesperson for Intuit, expressed concerns about wasting taxpayer dollars given the availability of current free tax preparation options.

In response to these concerns, Robert Nassau, director of the Low Income Taxpayer Clinic at Syracuse University College of Law, commended the Direct File program as an additional option for free tax preparation, hoping that more people will take advantage of it and avoid paying unnecessary fees to tax preparers.

The success of the Direct File program will require consistent and uninterrupted funding for the IRS. As part of the Inflation Reduction Act, the agency was given $15 million and nine months to develop a feasibility study, which recommended moving forward with the program based on public sentiment.

The IRS's Direct File pilot program represents a significant step towards a more streamlined tax filing process, simplifying the procedure for eligible taxpayers and potentially reducing the reliance on commercial tax preparation software.