This year, anyone who earned an adjusted gross income (AGI) of $79,000 or less in 2023 can access guided tax prep that'll help them file their federal taxes online for free. The new income cap is $6,000 higher than last year’s $73,000, and, according to an analysis by Money, marks the largest annual increase in the program’s 22-year history.
Typically, the IRS adjusts the income limit by roughly $1,000 to $2,000 in any given year, if it changes the limit at all. The previous two tax seasons, for example, the IRS held the Free File income threshold steady at $73,000. Now, many more Americans are expected to qualify for free online tax filing.
The IRS is partnering with eight companies that will offer tax prep and e-filed returns to those eligible:
- OnLine Taxes
If you have an AGI higher than $79,000, you can still use IRS Free File, too. You just won’t qualify to use free guided tax software through the IRS’s tax prep partners listed above. Instead, you’ll need to use the IRS’s fillable forms tool to complete your tax return.
The fillable forms tool is not yet open for the season, but those who are eligible for Free File can now access the guided tax software to get a head start. Tax season formally starts Jan. 29. Any returns filed before then will be held onto and processed starting on the official date.
IRS Free File remains underutilized
The IRS’s best-kept secret just might be its free e-filing program. According to the Free File Alliance (FFA), a nonprofit coalition of the IRS’s tax software partners, about 70% of taxpayers — accounting for some 100 million Americans — qualify.
The alliance was forged in 2002 between the IRS and private tax prep corporations on the understanding that the IRS would not create its own free tax-filing software (read: not directly compete with them) so long as the tax companies agreed to offer free guided tax prep and e-filing for low-to-middle income taxpayers.
But each year, only a small portion of Americans take advantage of this program and instead rely on paid versions of tax software or hire tax professionals directly — often unwittingly throwing away precious money in the process. According to the IRS, Americans typically spend around $140 and eight hours filing their taxes each year.
The latest figures from the FFA estimate that 3 million Americans used IRS Free File last year. Given that over 162 million taxpayers filed in 2023, that suggests less than 2% of all taxpayers filed their taxes online through Free File.
How to use IRS Free File
Be sure to gather your necessary paperwork before beginning, especially your income statements like W2s and 1099s. If your AGI — defined as your total income minus any eligible deductions or adjustments — is close to the cutoff, you may want to check Line 11 of last year’s Form 1040 as a guide.
To use IRS Free File tax software, first choose one of the eight IRS partners based on your eligibility using the IRS’s website.
While the overall AGI threshold is $79,000, certain partners may choose to set stricter criteria based on age, income or location. Not all partners offer free state income tax filing assistance. Once you choose the right provider, simply follow the guided prompts.
If you have an AGI above that amount, you can complete your federal taxes using the IRS’s Free File Fillable Forms, which are scheduled to open later this month. Read the instructions carefully, as this tool requires a lot more manual input and is only capable of basic calculations. State tax documents aren’t available.
Once you’ve manually completed your federal tax return, you should print it for your records. To file, sign your return and either mail it to the IRS or submit it online.
New, free IRS tax software on its way
Over the past two decades of the Free File program, the IRS’s relationship with private tax companies has soured. Mega tax-prep firms like H&R Block and Intuit’s TurboTax used to be a part of the IRS’s free e-filing program, but they dropped out in recent years.
In the case of TurboTax, for example, several states and the Federal Trade Commission sued the company for what it says amounts to widespread deception. While it was still a partner with the IRS, a 2019 ProPublica investigation alleged that TurboTax was deliberately steering taxpayers away from its free filing option, prompting them to pay for tax services. The multi-state lawsuit was ultimately settled for $141 million.
As for the IRS’s side of the agreement? The promise to hold off on making its own free tax-filing program expired in 2019. Flush with cash from the Inflation Reduction Act, the IRS has been developing free tax-filing software called Direct File, which is intended for all taxpayers to use (not just low- and middle-income earners).
While the software is still in the works, a beta test is rolling out this tax season. The IRS intends to begin inviting taxpayers to test it out starting next month. Later this tax season, the beta test is set to expand to all taxpayers in a dozen states: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.
Where applicable, the software will let you file state income tax returns, as well.
Treasury Secretary Janet Yellen tweeted Friday that she was able to see a demo of Direct File, calling it an "impressive product."
"This pilot program will start small in 2024," she said, "to allow the IRS to test it and learn from taxpayers."
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