This year they're back to the usual IRS deadlines for California taxpayers, but with a new tool for many low- and moderate-income households: a service that will prepare and file your tax returns online for free.
Starting later this year, taxpayers in California, Arizona, Nevada and nine other states will have access to a new IRS program called Direct File. Unlike free filing options offered by the IRS through third parties or free services from TurboTax and H&R Block, Direct File allows you to submit sensitive financial information directly to the IRS, without the need for a middleman.
It is also the first service from the agency itself that guides you in the process of completing your declaration. And its chat feature can provide answers to basic tax questions in real time from IRS customer service representatives.
However, there is a problem. Although Direct File is available to California taxpayers regardless of how much they earn, it can only be used by people who earn income in limited ways. For example, Direct File is not for you if you have income from an owned business, contract work, or gig economy jobs.
Regardless of how you do your taxes, you won't have an automatic extension of the deadline to file your 2023 return, at least not yet.
Due to damage caused by last year's winter storms, most California taxpayers had until mid-November to complete their 2022 returns and pay what they owed. There have been no federal disaster declarations in California so far, so the deadline to file your federal and state declarations for 2023 remains April 15.
If you're entitled to a refund, tax experts say, you should file your return as soon as possible. Otherwise, you will simply be loaning money interest-free to the federal government.
Here's what you need to know about Direct File.
Who will have access to Direct File?
The IRS is rolling out the program slowly to try to iron out any issues before releasing it to the general public. In addition to limiting access to taxpayers in 12 states (California, Arizona, Nevada, Washington, Florida, Massachusetts, New Hampshire, New York, South Dakota, Tennessee, Texas and Wyoming), it will make Direct File available at launch on Monday only for people who have been invited to test the system.
“Using a phased approach like this means that the pilot program will not be available to all eligible taxpayers immediately when the IRS begins accepting federal tax returns” on Monday, the agency said on its website. According to the San Francisco Chronicle, the agency hopes to open the program to more taxpayers in mid-March.
You can register on the IRS Direct File site to receive an alert that will let you know when the program is available to you.
Who can use Direct File?
The program will work only for taxpayers whose income is limited to wages reported on a W-2, Social Security or Railroad Retirement Board retirement benefits, unemployment benefits, or interest income of $1,500 or less. That means if you are self-employed, a business owner or contractor, or have income from a partnership or trust, Direct File is not for you.
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, the standard deduction, and deductions for student loan interest payments and of educators. Classroom expenses and professional development. If you can claim other credits and deductions, such as those for taxes paid abroad, child care, or retirement savings, or if you reduce your tax bill by itemizing deductions (for example, if you have significant medical expenses), Direct File No It would be a good choice.
Forms and chat help are available in English and Spanish.
How do I use Direct File?
The program runs online only; You will need a smartphone, tablet or computer to access. And to start, you'll need to prove to the IRS that you are who you say you are.
The only way to do that this year will be to use the identity verification service ID.me. ID.me scans your government-issued photo ID, like your driver's license or passport, then uses facial recognition software to compare your image from a live chat session or a new selfie to the stored photo. ID.me has raised concerns among some critics, who say it poses too big a threat to privacy and security.
Once you've established your identity, the program will verify your eligibility and then guide you as you enter information about your income, credits, and deductions. There is no need to download any software, the IRS said; Instead, your entries will be saved online and you can pause and resume them later without having to start over.
The program's question-and-answer approach means you won't have to know which forms to fill out or where in the forms to enter your information. Instead, the program will handle those details for you. That type of virtual contact is similar to what you would get when using commercial tax preparation software.
Can you complete your California tax return through Direct File?
No, the information you enter through Direct File will not automatically flow to your state tax forms; California is not one of the few states that have enabled it. Instead, the state Franchise Tax Board offers CalFile, as a way for qualified taxpayers to file their returns for free online. The restrictions for participating in CalFile are similar to those for Direct File, so if you're eligible for the latter, you can probably use the former.
What are the alternatives to submit your tax return for free?
The IRS already offers its Free File service to taxpayers whose adjusted gross income (that is, income less certain deductions, including retirement savings contributions and student loan interest payments) was $79,000 or less in 2023. Unlike Direct File, taxpayers with earnings from self-employment, their own businesses, investments or gig work are eligible, as long as they meet the income limits.
There is a version of Free File that allows you to fill out forms directly online, without guidance from the IRS. However, the most affordable version connects you with any of eight online tax preparation services, which will help you prepare your return for free.
Additionally, AARP Foundation Tax-Aide and the IRS-sponsored Volunteer Income Tax Assistance program can connect you with a volunteer tax preparer who will prepare your tax return for you or help you do it yourself, at no cost to you. These services provide tax preparation or guidance only to low- and moderate-income taxpayers who meet income limits, or who have disabilities or limited English proficiency.
TurboTax and Intuit's H&R Block also offer free versions of their tax preparation and filing software available online. There is no income limit, but the services work only with basic returns that require little more than a Form 1040. That would exclude anyone with income or losses from a small business, for example, or whose investments pay more than $1,500 in dividends. .
