Can you feel that energy in the air, the crackle of excitement among America’s accountants? Yes, today marks the official kickoff of tax season. And while the IRS code hasn’t undergone massive changes that are likely to impact your return year, there are at least a few developments worth a heads-up.
Depending on which state you live in, you may be newly eligible to use the IRS direct file program, which lets you file a return directly to Uncle Sam and has some nice upgrades this year that should make it useful for a larger number of filers. Meanwhile, if you’re a gig worker or small business owner who gets paid through apps like PayPal or Venmo, you’re likely covered by some new reporting gels intended to root out low-level tax fraud.
Read on for more information.
Read more: How to File Your 2024 Tax Return for Free
Direct file is expanded
After last year’s well-reviewed pilot effort, the IRS is expanding The direct file program to 13 new states, bringing the grand total to 25. The portal is still designed for relatively simple returns, but now comes with some new features usually found in private tax preparation software, such as the ability to automatically import your W-2 information from the IRS. It can now also handle a wider variety of tax conditions, including returns claiming the following credits:
The earned income tax credit
Child Tax Credit, Child and Dependent Care Credit
The Affordable Care Act’s premium tax credit
The credit for the elderly and disabled
Retirement savings contribution credits
The IRS believes those additions have to make 30.3 million Americans eligible to use Direct File this go-round. However, keep in mind that the program still has strict income limits:
Individual filers are eligible only if they earn less than $200,000 in wages per year, or $168,000 if they work more than one job.
Couples filing jointly must earn wages of $250,000 or less.
Couples filing separately must each have wages under $125,000.
Taxpayers also cannot use direct file if they have certain types of income, such as capital gains or rental profits. So, if you are a landlord or day trader, move on.
Instant File earned solid reviews last year, as Americans used it to file just over 140,000 returns. In a 15,000 person Customer service surveyapproximately 90% of users rated their experience as “excellent” or “above average” and more than three-quarters said the program was easy to use compared to the method they had relied on to file taxes. The Government Accountability Office also considered the pilot a success. However, it’s possible that customer service could take a hit this year thanks to the Trump administration’s federal hiring, which could hurt the IRS’s ability to properly staff it.
The political future of the immediate truce is also uncertain. Republican lawmakers have called for The Trump administration to end it, nominated Treasury Secretary Scott Besent Insured Members of Congress Earlier this month that he would hold this tax season, but he declined to make any long-term promises—saying only that he would “consult and study the program.”
You can go directly to the IRS website for a more detailed tool that will help you find out Your suitability within each state.
The free file is still there
If you make less than $84,000 a year, you are also eligible to use the free filing system that the IRS has long operated in partnership with private tax preparation companies. (Immediate file is more or less intended to replace it over time). The government reported That the program saw an early 10% increase in usage from last year.
New 1099-K reporting
If you use third-party payment apps like Venmo, CashApp, or PayPal for business purposes, you may receive a 1099-K form for the first time this year. Ditto if you sell merchandise on a site like eBay or Etsy.
That’s the result of reform included in the 2021 American Rescue Plan Act that aims to limit some fairly common types of tax discovery. In the past, the platforms only required filing 1099 forms for individuals with at least 200 transactions worth at least $20,000, leaving many income unreported. The legislation reduced that threshold to just $600.
The IRS has delayed implementation of the law to work out its complicated logistics, and this year, as an interim step, it is setting the reporting requirement at $5,000. The rule only covers business income, not payments to family and friends such as splitting a dinner bill or sending money to your roommate to cover rent. Apps like Venmo allow users to mark their transactions as business or personal, and the IRS Encourages taxpayers who accidentally receive a 1099-K to request a corrected copy. Otherwise, you can report it as an error on your tax forms.
One big loophole in the brands: because of the unique way it works, Zelle doesn’t consider herself Subject to the new reporting requirements and will not issue 1099-Ks under it. That may or may not have something to do with why every handyman you’ve probably used in the past year has asked to get paid on the app.
Read more: Tax reporting changes for Venmo and PayPal in 2024
The standard deduction is going to be huge
There’s a strong chance you won’t itemize your deductions this year. About 90% of Americans have been taking the standard deduction in recent years after it was significantly increased by the Tax Cuts and Jobs Act of 2017. This year it jumps to $14,600 for an individual and $29,200 for a couple — which, because we’re just about were the topic, should make it easier for some people to use a free program like Direct File.
Jordan Weissmann is a senior reporter at Yahoo Finance.
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