:max_bytes(150000):strip_icc()/ScreenShot2024-01-25at2.26.47PM-1acc4210a68b48b1951305425b740620.png "Why You Might Want To Wait Until March To File Your Taxes This Year")
Key Takeaways
- For the first time, taxpayers will be able to file their federal income taxes directly with the IRS, starting in March.
- The pilot Direct File pilot program will be available in 12 states, and will only work for relatively simple tax situations this year.
- Free online tax preparation is also available through private companies via the IRS Free File program, but the IRS admits the program is confusing and little used.
Procrastination might save you some money this tax season, at least if you live in New York, California, or one of 10 other states.
The IRS is rolling out a new, free way to file taxes online but it won’t be widely available until March—and even then, the pilot program is only being debuted in participating states. If you do live in one of them though, filing your federal taxes could cost you nothing, compared to a bill of up to $169 from online tax preparers like TurboTax and H&R Block.
The IRS has already begun testing the program but has yet to offer it to members of the general public, IRS officials said. It’s a historic occasion: until now, taxpayers had to use a third-party service if they wanted to file their taxes online, often for a fee.
You can use the direct file program if you have relatively common income sources and tax credits to claim. You’re out of luck though, if you have to itemize your deductions, earn money from a freelance or gig job, or claim relatively uncommon credits including the Child and Dependent Care Credit, Saver’s Credit or the Premium Tax Credit.
You’ll still have to find another way to file your state tax returns in Arizona, California, Massachusetts and New York. The site will direct you to a state-run service where you can also file your state tax returns for free.
The IRS will use data and feedback it gathers during the limited Direct File rollout this tax season to decide whether to continue to develop it, potentially covering taxpayers in more situations, IRS officials said.
‘Free’ Tax Prep Has Been Clouded In Confusion
Although free online tax filing is already available through private companies via the IRS’s “free file” program, the program is little known and not well used: only 3% of taxpayers used it in 2020, despite 71% being eligible for it, the Government Accountability Office found in a 2022 report. To use the free file program, taxpayers must visit the IRS website and select an option from a private company, subject to various income requirements and qualifications.
To make tax time even more baffling, various private companies, including TurboTax, offer their own free federal tax prep service. This week, the Federal Trade Commission ordered the company to change the way it advertises the service, however, since most people who try to use it will end up having to pay. As of Thursday, TurboTax’s “free edition” website had a prominent notice saying that about 37% of tax filers qualify to use it.
Many people lured by the promise of “free” tax filing begin to file their taxes using the website, only to find out midway through the process that they don’t qualify and will have to pay, the FTC said in a complaint in 2022.
Intuit (INTU), the maker of Turbotax, said it would challenge the FTC’s decision in court.