In brief: The Internal Revenue Service has launched a new online tool that allows taxpayers in select states to file federal income tax returns directly with the agency. Dubbed Direct File, the tool will be available to residents in Arizona, California, Florida, New Hampshire, New York, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and Massachusetts from March 12 at 1 p.m. Eastern.
The service is free to use although for now, you’ll need to meet certain criteria to be eligible.
According to the Treasury Department, nearly a third of all federal income tax returns could eventually be prepared using Direct File. For this tax season, an estimated 19 million folks could use the tool. Taxpayers needing to file state tax returns will have to find another solution as Direct File only works for federal taxes.
The Federal Trade Commission recently cracked down on “free” tax prep service providers including Intuit for engaging in what it called false advertising tactics. Intuit said the FTC’s decision was “deeply flawed” and was the result of a “biased and broken system” in which it acts as accuser, judge, and jury. Intuit has appealed the FTC’s decision.
Direct File could offer millions of taxpayers a free alternative to third-party software like TurboTax. The tool affords a step by step checklist to guide filers through the progress, and presents a clear summary of the information entered to minimize the chance of errors. The IRS recently uploaded an overview video on YouTube demonstrating how to use Direct File.
With additional restrictions and now, a free option directly from the government, it’s no wonder companies like Intuit are concerned.
Launching Direct File now may seem like an odd move consider there’s just over one month left before individual tax returns are due, but it was likely a strategic move to minimize usage should something go wrong. After all, the US government doesn’t exactly have the best track record when it comes to launching consumer-facing services on the web.
Individual income tax returns are due on April 15.
Image credit: Nataliya Vaitekvich
