Some Californians will be able to electronically file their 2023 federal tax returns for free directly with the Internal Revenue Service under a pilot program called Direct File.
While eligibility is still being determined, the IRS anticipates people reporting W-2 wage income, Social Security and unemployment insurance will be eligible, according to a blog post by the agency.
“We’re starting small to get it right,” the IRS said.
Direct File was created after Congress directed the IRS to study creating a free option for people to electronically file their taxes directly with the agency.
The IRS’s Free File, a partnership between the IRS and several tax filing software companies, will still be available. Taxpayers can use the service to be linked with several private companies to file their federal tax returns for free, as long as they didn’t earn too much the previous year.
Free File has fallen under controversy, however. In March 2022, the Federal Trade Commission sued Intuit, which makes the tax preparation software TurboTax, for heavily advertising free self-filing tax services, only to stick a payment screen in front of them after they entered tax information.
Users couldn’t access the free version of TurboTax through the company’s website but instead had to use a separate website, according to a 2019 ProPublica report. Intuit no longer partners with the IRS Free File program.
The IRS has not specified when people can first file their 2023 taxes, when they’ll be able to use Direct File or if there will be an income cap for the program’s users. Federal taxes are due on April 15 this year.
Direct File will be available in English and Spanish and won’t require any software to install and will work on mobile devices or a computer, the IRS said. The program will only cover individual federal tax returns. California tax returns can be filed for free through the California Franchise Tax Board website.
Alaska, Arizona, Florida, Massachusetts, New Hampshire, New York, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming are also participating in the pilot program.
A spokeswoman for Intuit called the direct file pilot a “half-baked solution” and a waste of taxpayer money. “The direct file scheme is a solution in search of a problem,” spokesperson Tania Mercado said.
Jafet Diego, free tax prep assistance coordinator at United Ways of California, which offers free online tax filing software and assistance, said her organization is excited about the pilot, adding it could improve financial literacy among taxpayers.