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California

California is one of 13 states eligible for IRS Direct File

A new way to file taxes is coming to certain California taxpayers soon.

The IRS is launching the Direct File pilot program for the 2024 tax season and four states will be testing ground. The pilot is a free service that allows taxpayers to file electronically directly with the IRS.

California will be one of the states in 2024 that will work with the IRS integrating state taxes into the pilot program, according to a news release from the IRS. The other three states: Arizona, Massachusetts and New York. The nine states without an income tax — Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — may also be eligible. Washington is joining for the state’s application of the Working Families Tax Credit.

It will be available in English and Spanish.

The Direct File pilot won’t replace existing options, such as IRS Free File — which offers free guided tax preparation for taxpayers whose annual gross income is $73,000 or less — or the Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs.

“This is a critical step forward for this innovative effort that will test the feasibility of providing taxpayers a new option to file their returns for free directly with the IRS,” said IRS Commissioner Danny Werfel.

The $14 billion tax preparation industry isn’t happy.

A spokesman for Intuit (the company behind TurboTax) told NPR earlier this year a direct system is “wholly redundant” and “nothing more than a solution in search of a problem.”

As part of a multi-state agreement, TurboTax paid out settlement checks to low-income Americans “tricked” into “paying for free tax services,” according to the Office of the New York Attorney General.

And a congressional report released in July found the personal information of millions of people who used H&R Block, TaxSlayer or TaxAct to do their taxes may have been shared with Google and Facebook.

Groundwork Action, an economic advancement organization, estimates as many as 5.2 million California taxpayers could benefit — when the program is fully up and running.

“The announcement of the direct file pilot is great news for the thousands of California taxpayers who will be able to easily file their taxes online for free, ” Igor Volsky, executive director of Groundwork Action, said in a news release. “While the for-profit tax prep industry and its supporters in Congress work to undermine the effort and protect corporate profits, the IRS is rightly moving forward in prioritizing the needs of taxpayers.”

The IRS submitted a report to Congress earlier this year evaluating the possibility of an optional direct file system and found 72% of a sample of taxpayers would be interested in using it. The report found 68% of taxpayers who self-prepare would consider switching.

Each year, one person spends about eight hours and $140 preparing their taxes on average.

Who would be eligible?

Not everyone in the 13 states will be eligible. It will be limited to certain types of income and claiming limited credits and adjustments.

Here’s what we can expect.

Income:

  • W-2 wage income

  • Social Security and railroad retirement income

  • Unemployment compensation

  • Interest of $1,500 or less

Credits

Deductions

  • Standard deduction

  • Student loan interest

  • Educator expenses

What is The Sum?

The Sum is your friendly guide to personal finance and economic news.

We’re a team of McClatchy journalists cutting through the financial jargon so you know how these issues impact your life. We verify information from diverse sources and keep the facts front-and-center, making finance and economic news add up for you.

Ready to take the first step to getting your finances under control? You can sign up for our five-week budgeting newsletter at thesum.news.

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Cortlynn Stark writes about finance and the economy for The Sum. She previously covered City Hall for The Kansas City Star and joined The Star in January 2020 as a breaking news reporter. Cortlynn studied journalism and Spanish at Missouri State University.

https://www.sacbee.com/news/california/article280693295.html California is one of 13 states eligible for IRS Direct File

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