This story was originally produced by the New Hampshire Bulletin, an independent local newsroom that allows NHPR and other outlets to republish its reporting.
Last week, the IRS began accepting tax returns. And Cary Gladstone, senior director of Granite United Way, prepared a small army of tax volunteers.
Each year, the nonprofit agency helps man a network of Volunteer Income Tax Assistance (VITA) centers, allowing lower-income residents to come into libraries and community centers at 15 locations across the state to receive free assistance with their tax filings from a trained volunteer. In New Hampshire, the effort helps around 5,000 people per year, a number Gladstone would like to expand.
“If people take away nothing more than they can get their taxes done for free, that’s a win,” he said. “If they also can understand and claim different tax benefits they may be eligible for, (even better).”
But this year, there’s another option for New Hampshire residents, directly from the Internal Revenue Service itself. Since May 2023, the IRS has been developing its own tax filing software that can be used for free, and this filing season, New Hampshire is one of 12 states that will be allowed to try it out.
The new pilot program is limited, targeted in its current form toward lower-income people with simpler tax returns. And it won’t be widely available to residents of the 12 states until mid-March. Those who are interested can sign up to be notified at https://directfile.irs.gov/
The Bulletin attended a demonstration of the Direct File program in January. Here’s what you need to know about how it works – and whether it’s right for you.
The IRS program: Helpful, but it’s not for everybodyThe Direct File pilot program is designed to allow certain people the ability to file electronically – much like the commercial options from TurboTax or H&R Block.
The program can accept basic tax forms. Those include a W-2 from an employer, a 1099-G for those receiving unemployment benefits, Form SSA-1099 for those getting Social Security payments, and up to $1,500 in interest income or U.S. bond obligations.
As long as a New Hampshire resident’s income is contained to those forms, they can use Direct File for their federal returns.
But the system has a number of exceptions that taxpayers should know before using it.
It can’t process 1099-K or 1099-NEC returns, meaning it can’t be used for any income from payment apps, online marketplaces, or payment cards, nor for any money coming in from “gig economy” jobs, such as delivery apps or Uber.
It also can’t take in 1099-MISC forms, which cover income from rent, prizes, and awards; 1099-Rs, which involve pension and retirement account distributions; and any allocated or unreported tips. The system doesn’t support any alimony that must be reported as income.
There are restrictions on health insurance, too. The system works for those on Medicare; state Medicaid; employer-sponsored health insurance; Veterans Affairs health insurance; or private health insurance paid out of pocket. But those who bought health insurance through a marketplace, such as Healthcare.gov, rather than through their employer should not use Direct File; nor should anyone who withdrew from a health savings account.
People using Direct File must choose the standard deduction; itemized deductions are not supported. Those who might consider itemizing include those who spent more than 7.5 percent of their income on health care; those who donate heavily to charity; and those who pay a large amount of property taxes or mortgage interest, the IRS says.
And the program isn’t available to high earners. Direct File can’t be used if a married couple is filing jointly and one person makes more than $200,000 or if together they make more than $250,000. For people who are unmarried, the income limit is $200,000, and for those married but filing separately, the income limit can’t exceed $125,000.
A true pilot program
The project emerged from the Inflation Reduction Act, which required the IRS to study the feasibility of the service and to see how many people would use it.
When the agency released a report that found many Americans would, they started building a program in May.
The resulting project is preliminary, IRS officials have stressed. It’s designed to be studied and learned from. And it is intentionally small in scope.
New Hampshire is joining Arizona, California, Florida, Massachusetts, Nevada, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming in the pilot program.
Many states in the initial round – including New Hampshire – don’t have income taxes. That was intentional, allowing the IRS to roll out the program to more states without needing to integrate the state and federal tax systems.
For those pilot states that do have state income taxes, like New York, the IRS has built a tool intended to allow filers to port over the information from their federal tax return into their state return. New Hampshire has an interest and dividends tax, which is being phased out but will still need to be paid for the 2023 and 2024 tax years.
For those using the IRS filing program, the agency will provide live tech support Monday through Friday from 7 a.m. to 10 p.m. The program is available in Spanish and English, with an option for users to toggle between the two languages as they file.
The system has been tested by more than 100 tax filers, according to the IRS.
Choosing what will work best
IRS representatives, who declined to speak on the record during the press demonstration, acknowledged the limitations, and noted that building in capacity to accept additional tax filing methods will take more time. But they said they have added numerous signposts throughout the process warning filers to use different methods if their income is not supported. And they said the purpose of the pilot rollout is to measure its success and make any improvements and additions before releasing it nationwide.
But for those who face those limits – and are looking to avoid commercial products – Granite United Way has alternative options, Gladstone notes.
People who make up to $79,000 can use MyFreeTaxes.com, a program designed by the United Way that includes a number of tax forms not currently accepted by IRS Direct File. That program allows filers to input their information online, receive email, phone, and chat support, and file their taxes electronically, similar to commercial options.
“So that, by that definition, about seven out of 10 people in the tax filing community can get their taxes done for free,” Gladstone said.
And those who make up to $60,000 can have their taxes prepared for them in person, by contacting their nearest VITA tax center and making an appointment. That process takes about two to three hours; centers can be found on the website for My Free Taxes.
The in-person sessions can be valuable, Gladstone noted, because they can help people maximize benefits such as the Earned Income Tax Credit, which can reduce their taxes or even result in a refund of thousands of dollars. And by working with a volunteer, filers can choose how to receive their tax fund and whether to directly deposit it into a checking or savings account or a U.S. bond.
Many are unaware of the benefits they could receive, especially from the Earned Income Tax Credit, Gladstone said. “For someone with three or more children – what the IRS calls qualifying children – that can be more than $7,000,” he said.
Even though Granite United Way doesn’t plan to use it, the IRS Direct File system is a small move toward a broader potential shift in the American tax system, Gladstone said. Some congressional Democrats have pushed for an overhaul that would do away with filing altogether and have the IRS prepare a tax assessment to which each citizen could add amendments. But that kind of overhaul faces stiff opposition.
“I can only speak for our program, and we want to see that continue to grow and people taking advantage of free filing,” he said.
New Hampshire Bulletin is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. New Hampshire Bulletin maintains editorial independence. Contact Editor Dana Wormald for questions: info@newhampshirebulletin.com. Follow New Hampshire Bulletin on Facebook and Twitter.
