The IRS is piloting a free TurboTax alternative, offering the benefits of the paid app without the price tag, but there are plenty of limitations for now.
TurboTax has become an increasingly popular way of filing taxes, as it automates a lot of what would otherwise be a tedious manual process …
The app promotes itself with the tagline “Snap, tap, done” as it lets you use your iPhone camera to take a photo of your W-2 form, and then automatically captures that information and loads it into the IRS tax return form. You can also begin the process on your phone, and then complete it on your Mac.
How much you pay for TurboTax depends on the features you need, but most users are looking at a cost of around $100.
IRS piloting free TurboTax alternative
The Washington Post says that the free IRS alternative is known as Direct File.
The IRS hopes the Direct File program, which will work in English and Spanish on mobile phones and desktop computers, will provide an easier option open to all — including people who don’t feel comfortable filling out tax forms — by offering simple question-and-answer prompts like users see on TurboTax or other commercial tax preparers.
With three major catches
The initial pilot scheme is very limited.
First, it will only be available in 13 states. Nine of them were selected because they don’t have state income tax, simplifying the task that Direct File has to carry out:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
A further four states that do have income tax agreed to work with the IRS to allow Direct File to handle state as well as federal tax filings:
- Arizona
- California
- Massachusetts
- New York
Second, even in those states, you won’t be able to just opt-in to using the app: You’ll need to receive an invitation from the IRS to participate in the pilot. Those invitations are due to be sent out in mid-February. It’s not known how many people will be invited, but the IRS says it is expecting “hundreds of thousands” of people to use the free tax filing app.
Third, the first version of Direct File can only handle the simplest tax cases.
It won’t allow users to itemize deductions — an option more than 10 percent of taxpayers elect — and will allow only certain tax credits and certain forms of income. Anyone who claims a credit for child-care expenses, for example, or who has interest income above $1,500 will not be able to use the free software. An IRS statement on Tuesday did not list self-employment income as one of the types of income likely to be processed by the software, which means gig workers would be left out.
Direct File will process three major tax credits: The Earned Income Credit, the Child Tax Credit, and the Credit for Other Dependents. The software will also allow users to deduct teachers’ expenses and student loan interest. But no other credits or deductions will work with the software in its initial iteration.
If you don’t receive an invitation, you may have access to free alternative approaches. If your income is below $73K, then the FreeFile program lets you use commercial apps without charge. Some taxpayers also have the option of having volunteers prep your taxes for you in person, again free of charge:
- People who generally make $60,000 or less
- Persons with disabilities; and
- Limited English-speaking taxpayers
The IRS says that other states are being invited to join the Direct File program, so it should roll out to more taxpayers over time.
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