On January 25 the Internal Revenue Service (IRS) launched a limited version of its Direct File tax software program. The first release is available to federal and state employees in 12 different states. The simplified version of the software is usable by government employees who have a Form W-2 and potentially use the Child Tax Credit or the Earned Income Tax Credit, among other subsidies.

The initial program will be available in 12 states. The states are Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming. Most of the states were selected because they do not have a state income tax.

IRS Commissioner Daniel Werfel was delighted with the launch of Direct File. He noted, "Direct File walks taxpayers through the complexity of the tax code. At every step it shows the work behind the calculations, so taxpayers can know it is accurate."

The initial version of Direct File has 350 screens and provides the user with multiple taxpayer examples or scenarios. The IRS states that Direct File will be available to additional taxpayers in these 12 states by the middle of March.

One concern for the IRS and tax professionals is there may be changes in the 2023 tax law. The Tax Relief for American Families and Workers Act of 2024 has not yet been passed, but Congress is attempting to create a bill that may change the rules on the 2023 Child Tax Credit. IRS officials have attempted to reassure taxpayers that the Direct File program can be quickly modified to incorporate tax changes. The IRS officials claim the program can be updated in one day to comply with potential 2023 tax changes.

Editor's Note: Many countries offer a government tax-filing solution. The Direct File program is a small and initial start to a multi-year software development process. It has started first with federal and state workers with hopes to expand to all taxpayers. In future years, the simple forms may transition to cover more complex tax returns. A major project will be the addition of over 40 state tax returns to the system. However, it now seems probable that the IRS is committed to providing this Direct File system. Eventually, it will be available to most taxpayers.