This tax season, the IRS is testing a new way for taxpayers to file for free, if they can access it at all.
As of Tuesday, the agency-led free tax filing software, called Direct File, is accepting new participants from a dozen states as part of a pilot test. But getting a spot can be tricky, as the program is only open “for short periods of time without notice,” an IRS official said in a statement. (Note: This tool is different from IRS Free File, which is available to anyone earning less than $79,000 last year and opened in January.)
The IRS briefly began allowing taxpayers to participate in the Direct File pilot test in batches Tuesday evening before shutting down later that night. Then, at 9 a.m. EST on Wednesday, the agency began accepting new tax filers again.
Here’s what you should know if you want to file your 2023 taxes for free using the IRS’s new software.
Check your eligibility
The most important factor in determining your eligibility to participate in the IRS Direct File pilot test is location. During this phase, the IRS only allows taxpayers from the following 12 states to join:
- Arizona
- California
- Florida
- Massachusetts
- Nevada
- New Hampshire
- New York
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
To qualify you would have had to live and earn all of your income in 2023 in your state. Of these 12 states, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming have no state income taxes. For the remaining states, Direct File may ask you to complete your state income taxes once your federal filing is complete.
Other key criteria include that your income in 2023 must come from the following sources:
- W-2 earnings from an employer
- 1099-G (unemployment compensation)
- SSA-1099 (Social Security Benefits)
- and/or 1099-INT (interest up to $1,500)
The IRS is imposing income restrictions on Direct File as well. You won’t be able to use Direct File if your salary exceeds $200,000 (or $160,200 if you have more than one employer). For married taxpayers filing separate returns, compensation cannot exceed $125,000, and total compensation for joint filers cannot exceed $250,000.
Even freelancers or workers earning from independent jobs will not be able to use the tool during the pilot phase.
Additionally, the Direct File tool currently does not accept itemized deductions, only the standard deduction, which is $13,850 for tax year 2023. Likewise, the tool only allows you to claim the child tax credit, the tax on earned income and tax credit for other dependents. People with more complex tax returns will need to find another way to file their tax returns, such as through the IRS Free File program or third-party tax preparation software.
Prepare in advance
Given the sporadic nature of the pilot test, it is helpful to prepare as much as possible Before plan to use Direct File, so the window doesn’t close before you’ve had a chance to archive.
One way to set yourself up for success is to sign up to receive email alerts from the IRS. If you accept the Direct File pilot changes, the IRS will send you an email shortly before opening Direct File to new users. On Wednesday, the IRS sent a message to subscribers about 15 minutes before it began accepting more testers.
Another crucial step you should take beforehand is registering for an ID.me account. ID.me is an identity verification service that you will be required to use to access the IRS Direct File pilot test.
Signing up for ID.me requires your name, email, Social Security number, government-issued ID, as well as a smartphone with a camera or a computer with a webcam so it can scan your face and compare it with your identity document. Once your ID.me account is ready, you need to return to the IRS Direct File site and log in via ID.me.
If you can get access, you should get started on your federal tax filing as soon as possible. Once you start filling out, your spot is reserved and you can come back to finish later (regardless of whether the window is technically open or closed). Even if you are able to access Direct File during the pilot test, if you have not started your federal return, you may be deported.
Monitor the IRS website
In addition to signing up for email alerts, the best way to find out when Direct File is accepting new people into the pilot test is to check the Direct File website.
At the top of the home page, a banner will show “the Direct File pilot is currently open to new participants” if it is indeed open.
However, the site won’t tell you how long the window will stay open, so that message should be your green light to start applying as soon as possible.
Also, the site isn’t very clear on how to start filing taxes while the pilot is open. To do this, select the “check my eligibility” button (even if you have already verified your eligibility) and click all the criteria. Eventually, the site will direct you to log in using your ID.me account, which, if you’ve set it up beforehand, should be as simple as clicking a green login button.
Once you’re officially in the pilot test, follow the guided instructions to file your federal tax return by referencing your W-2s and 1099s, if any. If you’ve ever filed returns using other guided tax preparation software like TurboTax or H&R Block, Direct File should be intuitive, as the IRS software also asks simple step-by-step questions and gives you references on where you can find various data points on your documents
Ultimately, the IRS will estimate the amount of your tax refund — or how much you owe — and give you a chance to review your information before submitting it. If you are receiving a refund, you can choose whether you want it directly deposited or mailed to you by check.
This year, the IRS also updated its “Where’s My Refund?” tool to simplify tax refund tracking. If you chose direct deposit, your refund should arrive in your bank account within about three weeks.
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