IRS Direct File is is available for eligible tax payers to file their tax returns online, for free, utilizing self-preparation software directly with the IRS.

How does this differ from IRS Free File? There are 25 states that are eligible to utilize this service; however, additional requirements need to be met. If you meet all the eligibility requirements, some taxpayers will be able to file their federal and state income tax returns for free. Here’s the list of the states where taxpayers can possibly utilize this service:

Alaska, Arizona, California, Connecticut, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin, and Wyoming.

Each state listed above has additional eligibility requirements that need to be met in order to utilize this service. Below, we will go through New York as an example.

Let’s check it out.

As we can see here, there are a list of scenarios where this tool may be a good fit and a list of scenarios where this tool may not work for tax payers.
There are only a small and very specific group of tax payers that fall into the eligible category.
529 Plans are savings accounts for college that offer tax benefits. Contributions usually appear on state tax returns since they are state-sponsored. However, they can be used nationwide, no matter which state you set them up in. If you use this kind of account, you cannot use IRS Direct File.
Some taxpayers may prepay their taxes, or make estimated payments. Some examples of individuals who make estimated tax payments are independent contractors, paid via 1099, or employees who may not be withholding enough to cover their tax liability, paid via W-2. If you make estimated tax payments, you cannot use IRS Direct File.
If you are a remote employee that worked in another state for more than 6 weeks, you may be responsible for paying income taxes to the state you visited. Since this would produce another state tax return, you may not be able to use IRS Direct File for this scenario.

Each state has different requirements and scenarios in which taxpayers may or may not be able to utilize the IRS Direct File. It is important to explore all your tax preparing options to ensure you are finding a solution that best suits your tax situation. These options include:

Paid Self-Preparation Software
IRS Free File
Local CPA or Licensed Tax Preparer
Paid Assisted-Preparation Services

It is equally as important to ensure your information is prepared so that your taxes can be completed accurately and timely. For individuals who have multiple streams of income or operate independently, your information can be maintained by a trusted professional to ensure your expenses are properly recorded in time for tax season.

This blog is for educational purposes only. Mikaesbooks is not a tax advisor or legal professional. Seek an Enrolled Agent, EA or a Certified Public Accountant, CPA, or other tax professional for more information.