If you're a California resident and haven't filed your 2023 federal tax return, you now have another, more user-friendly online option: the IRS's free Live File service.
However, it is not for everyone. Instead, it mainly targets people with very simple annual tax returns, which the Treasury said amounts to about one in three taxpayers.
The tax agency launched the live file service in January on a very limited basis to ensure its online systems are up to the task. That changed Monday, when the IRS announced that Direct File is available to all taxpayers in California, Arizona, Nevada and nine other states.
Think of Direct File as the IRS's alternative to the free online tax filing software from TurboTax and H&R Block. It provides step-by-step instructions for filling out and filing your tax forms and paying any amount you may owe or getting your refund.
The program's question-and-answer approach means you don't have to figure out what forms to fill out or where to enter your information into the forms. Instead, the software will process these details for you.
The IRS already works with several tax preparation companies to provide low-income taxpayers with a free online tax filing service called Free File. What makes Live File different is that there is no middleman and no income limit for participants – anyone can use it, provided their tax returns use only the basic forms.
Specifically, the program will only work for taxpayers whose income is limited to wages reported on Form W-2, Social Security or Railroad Retirement Board retirement benefits, unemployment benefits or interest income of $1,500 or less. This means that if you are self-employed, a business owner, a contractor, a temporary worker, or if you have income from a partnership or trust, Direct File is not for you.
The Treasury Department estimates that 19 million people in the 12 participating states are eligible to use Direct File this year and that several hundred thousand people will do so.
Direct File also allows you to claim only a truncated list of credits and deductions: the earned income tax credit for low-income workers, credits for children and other dependents, and the standard deduction and deductions for student loan interest payments, teacher classes, and professional development expenses. If you are able to claim other credits and deductions, such as paid foreign taxes, child care, or retirement savings, or if you reduce your tax bill by itemizing deductions (for example, if you have large medical expenses), you can file directly, which would not be an option. Good for you.
Another caveat: The IRS says Direct File will only be available until April 15, when most Californians are due their 2023 returns. The agency postponed the deadline for San Diego County taxpayers to June 17 in response to the federal disaster declaration in that county.
Live file playback is done online only; You'll need a smartphone, tablet, or computer to access it. To get started, you'll need to prove to the IRS that you are who you say you are.
The only way to do that this year is to use the identity verification service ID.me, which takes a scan of your government-issued photo ID, such as a driver's license or passport, and then uses facial recognition software to match your photo. From a live chat session or a new selfie versus a stored photo. ID.me has raised concerns from some critics, who say it poses too big a threat to privacy and security.
Once you're identified, the software will verify your eligibility, then guide you as you enter information about your income, credits, and deductions. You don't need to download any software, the IRS said; Instead, your entries will be saved online, and you'll be able to pause and resume later without having to start over.
Direct File has a live chat feature to help taxpayers with questions, but it is not a source of free tax advice.
“IRS customer service representatives can provide technical support and provide basic clarifications of tax law related to the direct file tax scope,” the agency said in a statement. “Questions regarding issues other than the direct file will be directed to other IRS customer support, as appropriate.”
The Live File service isn't integrated into California's tax filing system yet, so you won't be able to seamlessly transfer your federal information to your state return. The state Franchise Tax Board offers a free online return-filing system called CalFile whose restrictions are similar to those of Direct File, so if you qualify for the latter, you'll likely be able to use the former.
If you're entitled to a refund, tax experts say, you should file your return as soon as possible. Otherwise, you're just making an interest-free loan to the federal government.
