IRS debuts Direct File pilot program for 2024 tax season

Tax season is officially here whether you are ready or not. The Internal Revenue Service opened the 2024 tax season on Monday, January 29, and the federal agency is working to make the process more streamlined for many Americans. The changes include the pilot for a new program for a number of states that includes Texas, as well as some changes to the Texas tax code. 

The Direct File pilot was announced in October. Texas is among the nine states without an income tax that is part of the program, which also includes Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Washington, and Wyoming. Arizona, California, Massachusetts, and New York are using the pilot program to integrate their state taxes in the program. 

The Direct File program is a new service that will provide taxpayers with the choice to electronically file their federal tax return directly with the IRS for free, according to the federal agency. The IRS noted that taxpayer eligibility to participate in the pilot will be limited by the state in which the taxpayer resides and will be limited to taxpayers with certain types of income, credits and deductions — taxpayers with relatively simple returns.

The state also doubled its “no tax due” threshold, which means that a taxable entity that generates less than $2.47 million in total annual revenue will be required to file a “no tax due report.” The Texas Comptroller said that entities will still be required to file Form 05-102, Public Information Report, or Form 05-167, Ownership Information Report. The forms can be accessed on the Texas Comptroller’s website. 

The comptroller also shared that for reports due on or after January 1, a qualifying new veteran-owned business is no longer required to file a No Tax Due Report during its initial five-year period. The No Tax Due Information Report, Form 05-163, has been discontinued. 

The deadline for taxpayers to file a 2023 tax return and pay any tax owed is Monday, April 15, 2024. If a taxpayer is in a federally declared disaster area, there are possible extensions available but Texas does not have an eligible disaster in 2024 at the time of writing.

There are a number of tax preparation services like Turbotax and H&R Block that allow U.S. citizens to file their taxes for free, but the services will try to sell customers on upgrades and services that include saving and accessing older returns to help with future filings. 

The IRS offers an electronic tax filing through the IRS E-File program that is a free, guided tax software available for citizens with an adjusted gross income of $79,000 or less. The IRS also offers free tax help and e-file taxpayers for those who qualify for the Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs. 

The IRS states that individual tax filers, regardless of income, can use IRS Free File to electronically request an automatic tax-filing extension to October 15. Taxpayers can also get an extension by electronically paying all or part of the estimated income tax due and indicating the payment is for an extension, according to the IRS.

Tax refunds from the IRS typically take up to 21 days for an e-filed return, four weeks or more for an amended return or a return sent by mail, and corrections or additional reviews can postpone returns for longer. 

Those without access to the internet may call the automated refund hotline at 800-829-1954 for a current-year refund or 866-464-2050 for an amended return.

The IRS provides U.S. citizens with a website that allows possible taxpayers to check if they need to file a tax return. According to the IRS, most U.S. citizens or permanent residents who work in the U.S. have to file a tax return because gross income is over the filing requirement and citizens have over $400 in net earnings from self-employment that includes side jobs and other independent work.

The agency also outlined additional circumstances that would require a tax return to be filed, including:

1. A citizen owes any special taxes reported on Schedule 2 on Form 1040. 
   1. Alternative minimum tax.
   2. Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account.
   3. Social security or Medicare tax on tips were not reported to the employer or on wages received from an employer who didn’t withhold these taxes.
   4. Uncollected social security, Medicare, or railroad retirement tax on reported tips to the employer or on group-term life insurance and additional taxes on health savings accounts.
   5. Household employment taxes.
   6. Recapture taxes.
2. If the citizen, or a spouse if filing jointly, received Archer MSA, Medicare Advantage MSA, or health savings account distributions.
3. Applicable wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. 
4. Advance payments of the premium tax credit were made for the citizen, a spouse, or a dependent who enrolled in coverage through the Health Insurance Marketplace. The citizen or whoever enrolled the citizen in the coverage should have received Form(s) 1095-A showing the amount of the advance payments.

The IRS also suggests that citizens should file a tax return even when not required “if you can get money back.” 

The IRS outlines the multiple ways tax penalties can be calculated.

• The Failure to File penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty won’t exceed 25% of unpaid taxes, according to the agency. 
• If both a Failure to File and a Failure to Pay penalty are applied in the same month, the Failure to File penalty is reduced by the amount of the Failure to Pay penalty for that month, for a combined penalty of 5% for each month or part of a month that your return was late. 
• If after 5 months a citizen still haven’t paid, the Failure to File penalty will max out, but the Failure to Pay penalty continues until the tax is paid, up to its maximum of 25% of the unpaid tax as of the due date.
• If the return is more than 60 days late, the minimum Failure to File penalty is a specific calculated or 100% of the underpayment, whichever is less:
  • On or before 12/31/2008, minimum amount is $100.
  • Between 01/01/2009 and 12/31/2015, minimum amount is $135.00.
  • Between 01/01/2016 and 12/31/2017, minimum amount is $205.00. 
  • Between 01/01/2018 and 12/31/2019, minimum amount is $210.00.
  • Between 01/01/2020 and 12/31/2022, minimum amount is $435.00.
  • Between 01/01/2023 and 12/31/2023, minimum amount is $450.00.
  • After 12/31/2023, minimum amount is $485.00.

The agency does charge interest on tax penalties. The IRS says that the date from which interest begins accumulating varies by the type of penalty, and the interest increases the amount owed until the balance is paid in full. 

Citizens can apply for a payment plan to possibly reduce future penalties. Penalties can be reduced or removed if citizens “acted in good faith and can show reasonable cause for why you weren’t able to meet your tax obligations.” The IRS notes that interest cannot be removed or reduced unless the penalty is removed or reduced. 

Penalties can also be disputed by calling the the toll-free number at the top right corner of a notice or letter or write the IRS a letter stating why the agency should reconsider the penalty. The letter must be signed and sent with supporting documents to the address on the notice or letter, the IRS says on their website. 

The IRS announced the tax brackets for the tax year 2024 in November. The agency said in a press release that the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350, or $731,200 for married couples filing jointly. The other brackets are outlined as follows:

1. 35% for incomes over $243,725 or $487,450 for married couples filing jointly.
2. 32% for incomes over $191,950 or $383,900 for married couples filing jointly.
3. 24% for incomes over $100,525 or $201,050 for married couples filing jointly.
4. 22% for incomes over $47,150 or $94,300 for married couples filing jointly.
5. 12% for incomes over $11,600 or $23,200 for married couples filing jointly. 
6. The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less, or $23,200 or less for married couples filing jointly.

• The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 or $133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700.
  • For comparison, the 2023 exemption amount was $81,300 and began to phase out at $578,150 or $126,500 for married couples filing jointly for whom the exemption began to phase out at $1,156,300. 
• The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase of from $7,430 for tax year 2023. 
• For tax year 2024, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $315, an increase of $15 from the limit for 2023.
• For the taxable years beginning in 2024, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,200. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $640, an increase of $30 from taxable years beginning in 2023.
• For tax year 2024, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,800, an increase of $150 from tax year 2023, but not more than $4,150, an increase of $200 from tax year 2023.
  • For self-only coverage, the maximum out-of-pocket expense amount is $5,550, an increase of $250 from 2023.
  • For tax year 2024, for family coverage, the annual deductible is not less than $5,550, an increase of $200 from tax year 2023; however, the deductible cannot be more than $8,350, an increase of $450 versus the limit for tax year 2023. For family coverage, the out-of-pocket expense limit is $10,200 for tax year 2024, an increase of $550 from tax year 2023.
• For tax year 2024, the foreign earned income exclusion is $126,500, increased from $120,000 for tax year 2023.
• Estates of decedents who die during 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 for estates of decedents who died in 2023.
• The annual exclusion for gifts increases to $18,000 for calendar year 2024, increased from $17,000 for calendar year 2023.
• The maximum credit allowed for adoptions for tax year 2024 is the amount of qualified adoption expenses up to $16,810, increased from $15,950 for 2023.