After extensive testing, the Internal Revenue Service (IRS) has launched Direct File, an electronic system allowing taxpayers from 12 selected states to file their returns directly with the IRS.

The program, designed for taxpayers with simple W-2s and who claim the standard deduction, aims to provide a free and straightforward alternative to commercial tax preparation software.

Direct File, a free online tool, is now available for taxpayers in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.

The Spanish version of the program will also be accessible starting at 1 p.m. ET Tuesday. With an estimated one-third of all federal income tax returns potentially eligible for Direct File, around 19 million taxpayers may benefit from the tool this tax season.

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The initiative, championed by the U.S. Department of the Treasury, aims to streamline the tax filing process, offering a user-friendly platform with no unnecessary fees or upselling.

"Dozens of countries have provided free tax options to their citizens for years," Deputy Secretary of the Treasury Wally Adeyemo shared during a press call on Monday. "American taxpayers who want to file their taxes for free directly with the IRS should have that option."

The launch of Direct File comes amid scrutiny from the private tax filing industry and some Republican lawmakers questioning the IRS's authority to create such a program. However, IRS Commissioner Danny Werfel asserts the agency's responsibility and authority to offer taxpayers different approaches to meet their tax obligations.

Direct File is tailored for taxpayers with straightforward tax situations, accepting only Form W-2 wages, Social Security retirement income, unemployment earnings, and interest of $1,500 or less. It excludes filers with contract income reported via Form 1099-NEC, gig economy workers, or self-employed individuals. To qualify, taxpayers must claim the standard deduction, set at $13,850 for single filers and $27,700 for married couples filing jointly for the 2023 tax year.

The program supports a limited number of credits, including the earned income tax credit, child tax credit, and credit for other dependents, as well as deductions for student loan interest and educator expenses. However, it does not accommodate state tax returns, though users from certain states will be directed to state-supported tax-prep tools.

Despite its limitations, Direct File represents a significant step towards simplifying the tax filing process and reducing reliance on commercial tax preparation software. With a focus on providing accessible and cost-effective solutions, the program aims to empower taxpayers and enhance efficiency within the tax system.

According to National Economic Advisor Lael Brainard, Direct File aligns with President Joe Biden's commitment to reducing costs for working families, potentially saving taxpayers hundreds of dollars annually.

The Direct File pilot is a component of the agency's initiative to develop a fresh government service, potentially supplanting the reliance on commercial tax preparation software like TurboTax for certain taxpayers. With the potential to save time and money for millions of Americans, Direct File represents a promising development in the realm of tax administration and financial empowerment.

Tax policy U.S.