The IRS Direct File service is a new tax tool that allows some eligible taxpayers to prepare and file their federal tax returns for free online directly with the IRS. The most significant difference between IRS Direct File and using a tax preparer is that anyone can use a tax preparer to file their taxes, but only certain eligible taxpayers can file using IRS Direct File. Tax preparers also have an advantage over IRS Direct File because they can offer in-person support, audit protection, and other services missing from a do-it-yourself tax preparation program like IRS Direct File.
IRS Direct File vs. tax preparers
Other than being a method for filing a federal tax return, there are few similarities between IRS Direct File and using a professional tax preparer. For example, IRS Direct File doesn’t allow users to prepare state returns. If a taxpayer files their federal return with IRS Direct File, they will be guided to another platform to file their state return once they have finished. The IRS states that the process will be simple and import the user’s info over, but if they file with a tax preparer, they will benefit from one seamless process.
There are several differences between IRS Direct File and tax preparers. IRS Direct File has certain income, state, credit, and deduction limitations that will prevent some taxpayers from using the service. A tax preparer using software like TaxSlayer Pro will avoid facing these limitations. Taxpayers must also have an ID.me account to file with IRS Direct File.
Who qualifies for IRS Direct File?
It is difficult to know which taxpayers qualify for IRS Direct File for the 2025 tax filing season. The IRS has listed many updates to its program since the 2024 beta version, but there are still a few questions. TaxSlayer Pro will continue to update this article as we learn more.
At this time, taxpayers must meet the following criteria to use IRS Direct File for the upcoming season.
States
Taxpayers must live in one of the following states for the entire year in 2024. IRS Direct File does not allow part-time residents or individuals who moved throughout the year to use the program.
- Alaska
- Arizona
- California
- Connecticut
- Florida
- Idaho
- Illinois
- Kansas
- Maine
- Maryland
- Massachusetts
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- Oregon
- Pennsylvania
- South Dakota
- Tennessee
- Texas
- Washington state
- Wisconsin
- Wyoming
Income types
To use IRS Direct File, taxpayers must also only have income from the sources listed below:
- Traditional wage income (Form W-2)
- Social Security income (Form SSA-1099)
- Unemployment compensation (Form 1099-G)
- Interest income (Form 1099-INT)
- Retirement income (Form 1099- R)
- Form 1099-MISC only for Alaska residents reporting the Alaska Permanent Fund Dividend
Taxpayers can’t use IRS Direct File if they earned other types of income, such as:
- Gig economy
- Rental income
- Business income
- Income from dividends
- Alimony
- Tips
- 1099-NEC
- 1099-MISC
- 1099-K
Health insurance
If a taxpayer bought health insurance for themself, their spouse, or their dependents directly through the Marketplace (Healthcare.gov) or a state program, they are not eligible to use IRS Direct File. Taxpayers who have this insurance will receive Form 1095-A.
Tax credits
If a taxpayer wishes to claim one of the following credits, they cannot use IRS Direct File.
- Clean vehicle tax credit
- Residential Clean Energy Credit
- Energy Efficient Home Improvement Credit
- Foreign Tax Credit
- Credit for Prior Year Minimum Tax – Individuals, Estates, Trusts
- Low-Income Housing Credit
- Adoption Credit (Form 8839)
- Lifetime Learning Credit
- American Opportunity Credit
Tax deductions
While most deductions are included with IRS Direct File, taxpayers cannot itemize them. If a taxpayer will benefit from itemizing rather than taking the standard deduction, they must use a tax preparer or another DIY software.
Benefits of hiring a tax preparer
There are several advantages to choosing a tax preparer over IRS Direct File. You can share these points with potential clients to ease any concerns they might have or use them to market your business.
With a tax preparer, there are no tax situation limitations like with IRS Direct File. Every form, credit, deduction, type of income, and state is available with a tax preparer.
A tax preparer provides their industry expertise and knowledge, ensuring taxpayers get their maximum refund and that there are no errors on their return. When a taxpayer chooses to file their taxes with a program like IRS Direct File, there are no guarantees that they won’t miss a credit or deduction they are eligible for and won’t maximize their refund or minimize their amount owed. Using a tax preparer can actually save clients money by finding credits or deductions that might otherwise go unclaimed, especially at the state level. Tax preparers can also review clients’ prior year returns to make sure they claim every tax break available.
Tax preparers can also provide personalized experience with expert support. They can answer any questions the taxpayer might have and double-check that they aren’t missing a form. IRS Direct File does not provide this level of hands-on support.
Tax preparers also use robust software like TaxSlayer Pro to handle complex tax situations. Currently, IRS Direct File’s software is limited in what kinds of forms, income, and tax situations it can handle. Taxpayers can feel peace of mind knowing that their tax preparer has up-to-date software to handle any situation.
Using a tax preparer can save taxpayers a lot of time. Typically, if the taxpayer gathers all their forms and info and attends a short meeting, the tax preparer can take over. The tax preparer takes the brunt of filling out all the forms and researching to determine if they are eligible for any tax breaks. For this reason, tax preparers save taxpayers time and prevent headaches if they are not well-versed in tax code.
Another item that the IRS Direct File is missing is additional services like audit protection, identity theft protection, and refund products. Tax preparers using TaxSlayer Pro have access to a wide range of services that can further assist their clients. Protect your clients against an audit, allow them to apply for a refund advance, or help protect them against identity theft. Or if the taxpayer needs a portion of their refund quickly, tax preparers have access to bank products that can help taxpayers receive a refund advance or their refund funded as soon as the IRS accepts it.
Tax preparers can help their clients year-round, not just during tax season. In addition to filing taxes, they can help clients make tax-saving decisions, assist with filling out Form W-4 and adjusting withholdings, or advise on tax planning decisions, like how much they should contribute to retirement accounts throughout the year.
Overall, IRS Direct File is more of a competitor to other DIY tax filing software companies than tax preparers with a loyal customer base. Still, as a tax preparer, it is essential to stay informed about this new program and continue growing and enhancing your business to stay ahead of the curve. You want to continually attract new clients with your expertise and other service offerings. TaxSlayer Pro can help you get ahead of this new challenge, providing you with robust tax preparation software that fits your business. Whether you need a mobile solution, business software to file complex corporate returns, an AI chat that double-checks your tax knowledge, or unlimited free 1040 filing, TaxSlayer Pro has you covered.
