CALIFORNIA, USA — Tax season is once again upon us, but this year there's a new free tool many Californians could use to file for free.
California is one of 12 states chosen to pilot a new program for the Internal Revenue Service. It's a free, online filing system which more than 5 million qualifying Californians can start using Jan. 29.
It’s also available in: Arizona, Massachusetts, New York, Washington, and states without a state income tax filing like Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, and Wyoming. It’s a free, online filing system aiming to
"Americans spend 1.7 billion hours, or about $31 billion, just to file their taxes and for the average family we are talking about 13 hours and $250 on average every single year," he said. "This direct file pilot takes all that away."
All people will have to do is go online to the IRS website and file electronically. Qualifying measures aren't based on income, but rather the type of income.
“W-2 income qualifies, unemployment benefits qualify, there are also certain credits that qualify as well: earned income tax credit, child tax credit and some deductions,” said Volsky.
Direct File is launching as a limited-scope pilot in early 2024, and covers the following taxpayers in pilot states:
- Certain types of income:
- W-2
- Unemployment benefits
- Interest up to $1,500 (no Schedule B)
- Social Security (and Railroad Retirement) benefits
- Certain credits:
- Earned Income Tax Credit
- Child Tax Credit
- Credit for Other Dependents
- Some deductions:
- Standard deduction
- Student loan interest deduction
- Educator expenses subtraction
New this year, all income brackets have increased at both the federal and state level in response to inflation. The Howard Jarvis Tax Payer Association says there is a new concern this year and President Jon Coupal says California needs to make some changes.
"There had been a rate cap on disability insurance that is paid out of a payroll, but that cap is lifted so California’s previously high tax rate of 13.3% is now 14.3%,” said Coupal.
California, once again, is the state with the highest income tax.
The new tax on those paid by third party apps like Venmo, Zelle, Paypal will also see some changes. If you exceeded $600 in transaction and use one of these apps as a small business, freelancer or for large transactions, you may receive a 1099-K form this year and be asked to list transactions.
Also in tax news, a bill to prevent victims of weather disasters from paying federal tax on relief funds is moving forward to the House of Representatives. Californians already don’t have to pay state taxes on their PG&E settlements, but this bill will protect those funds from federal taxes, too.
If passed as currently written, the bill could change how people all over the United States who received relief funds due to hurricanes and other disasters pay taxes on them.
Read more about the pilot program here.
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