Beginning in 2024, the IRS will unveil Direct File, a new pilot program that allows taxpayers to electronically file their taxes directly through the federal agency.
The pilot program will be available to taxpayers in 13 states. According to the IRS, eligibility “will be limited to taxpayers with certain types of income, credits, and deductions.”
Here are the places where taxpayers can try out Direct File — and hopefully get ahead financially when they file their returns.
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Alaska
Alaska is one of nine states with no income tax. There's also no state sales tax, although some municipal governments do have sales taxes.
Arizona
Arizona has a flat income tax rate of 2.5%. The new flat tax went into effect in 2023. The state is one of four integrating its state taxes into the Direct File pilot.
This does not mean Direct File will prepare state returns. Instead, taxpayers will have access to state-based tools allowing them to file a state return.
California
California has 10 different tax brackets for its citizens, ranging from 1% to 13.3%. The state also will integrate its state taxes into the Direct File Pilot.
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Florida
There is a reason Florida is one of the most popular destinations for both retirees and younger people: The state does not have any income taxes.
Massachusetts
Massachusetts has a flat tax rate of 5%. However, a new law means folks pay an additional 4% tax on incomes above $1 million.
The Bay State is another on the list of places integrating its state taxes into the Direct File Pilot.
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Nevada
Nevada doesn’t have an income tax or corporate income tax. However, it does have other taxes on things such as alcohol, gambling, and hotels.
New Hampshire
New Hampshire imposes a flat 4% income tax rate on interest and dividend income but doesn't tax other income.
In addition, New Hampshire lacks a state sales tax and does not impose any local sales taxes.
New York
New York is a tax-heavy state with nine brackets ranging from 4% to 10.9%. The Empire State will integrate its state taxes into the Direct File program.
South Dakota
South Dakota does not have a state income tax. It gets most of its revenue from sales and excise taxes.
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Tennessee
Tennessee does not collect income tax. It recently eliminated interest and dividend income taxes, meaning all income is now tax-free.
Texas
Things are almost always bigger in Texas — except for income taxes, which it doesn't collect.
Washington
Washington doesn’t have an income tax but leans heavily on state sales and local sales taxes.
Washington is joining the Direct File pilot for its application of the state's Working Families Tax Credit.
Wyoming
Wyoming is one of the Western states that has stayed true to its frontier spirit: It has no income tax.
More about the Direct File pilot
The IRS notes that all states were invited to join the Direct File pilot but says that “not all states were in a position to join the pilot at this time.”
In a press release, the IRS notes that the Direct File program is intended for taxpayers with “relatively simple returns.”
The pilot program will be available in both English and Spanish. Initially, a small group of eligible taxpayers will be able to participate, as the IRS wants to be sure the program is working smoothly.
As the tax season progresses, more taxpayers should become eligible to participate in Direct File.
Bottom line
The new IRS Direct File program might help you file your taxes for free next year, which might mean you can keep more money in your wallet.
The IRS is promising to unveil full details about the program soon, so stay tuned for more news.
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