IRS opens up use of Direct File as a permanent, free tax filing option in all 50 states and D.C.

MAY 30, 2024:

The U.S. Department of the Treasury and Internal Revenue Service (IRS) announced that Direct File will be a permanent, free tax filing option and invited all 50 states and the District of Columbia to join in Filing Season 2025. This announcement follows a successful Pilot Program that saw 140,000 taxpayers claim more than $90 million in refunds and save an estimated $5.6 million in filing costs.

Direct File was made possible by resources from President Biden’s Inflation Reduction Act to invest in the IRS and deliver world-class service to American taxpayers that saves them time and money. The Treasury Department’s goal in the coming years is to expand the reach and tax scope of Direct File to provide an option for working-and middle-class taxpayers nationwide.

“President Biden is committed to saving Americans time and money and ensuring families receive the tax benefits they’re owed. Providing a free tool to all Americans who want the option to file directly with the IRS is key to achieving those goals,” said U.S. Secretary of the Treasury Janet L. Yellen. “After a successful pilot, we are making Direct File permanent and inviting all 50 states to offer this free filing option to their residents. The Treasury Department and IRS look forward to working with states to expand Direct File for Americans across the country.”

Direct File is central to the Biden-Harris Administration’s efforts to deliver modern, world-class customer service using Inflation Reduction Act resources. Direct File also advances a goal of the IRS’s Strategic Operation Plan (SOP) to ensure that taxpayers receive tax credits that they are eligible for, like the Child Tax Credit and Earned Income Tax Credit. The IRS will continue to improve the product over time and ensure that it remains free, secure, and easy to use.

Background on the Direct File Pilot Program

The average American spends $270 and 13 hours filing their taxes. (Taxpayer Burden Survey) President Biden’s Inflation Reduction Act required the IRS to study the potential for an IRS-run Direct e-File System that would allow taxpayers to file taxes for free, directly with the IRS. After reviewing the report, which showed strong taxpayer interest in a free IRS filing option, the Treasury Department initiated a pilot of IRS Direct File during the 2024 Filing Season.

In Filing Season 2024, Direct File was available to taxpayers with simple tax situations in 12 states. The Pilot exceeded expectations with more than 140,000 Americans successfully filing in the five weeks the program was widely available following extensive product testing. These filers claimed more than $90 million in refunds and saved an estimated $5.6 million in tax preparation fees on their federal returns alone.

Direct File users also reported a high degree of satisfaction and quick answers to their filing questions. In a GSA Touchpoints survey of more than 11,000 Direct File users, 90 percent of respondents ranked their experience with Direct File as “Excellent” or “Above Average.” A majority of survey respondents who filed taxes in the prior year reported having to pay to prepare their taxes last year. Among survey respondents, 47 percent of users paid to file their taxes last year and 16 percent did not file last year at all. 

In Treasury and IRS engagements with Direct File users, taxpayers relayed that Direct File was straightforward to use, and they valued features that allowed them to learn more about different tax situations, credits, and deductions. Taxpayers emphasized their appreciation for the fact that Direct File is always free and there are no hidden fees or attempts to upsell users as they moved through the filing process. Taxpayers also shared that filing directly with the IRS gave them confidence and that they were able to quickly fix mistakes and get their taxes filed accurately.   

After engaging directly with users to hear about their experience, reviewing results from a GSA touchpoints survey, and analyzing additional data, IRS Commissioner Danny Werfel recommended to Secretary Yellen to make Direct File permanent. He cited overwhelming satisfaction from users, improved ease of tax filing, and lower costs for taxpayers among the reasons for his recommendation, which Secretary Yellen has accepted.

MARCH 12, 2024:

NEW YORK (AP) — After weeks of testing, an electronic system for filing returns directly to the IRS is now available (March 11, 2024) for taxpayers from 12 selected states.

The new system, called Direct File, is a free online tool. Taxpayers in the selected states who have very simple W-2s and claim a standard deduction may be eligible to use it this tax season to file their federal income taxes. The program will also offer a Spanish version, which will be available starting at 1 p.m. Eastern Time on Tuesday.

The Treasury Department estimates that one-third of all federal income tax returns filed could be prepared using Direct File and that 19 million taxpayers may be eligible to use the tool this tax season.

“Direct File will offer millions of Americans a free and simple way to file their taxes, with no expensive and unnecessary filing fees and no upselling, putting hundreds of dollars back in the pocket of working families each year, consistent with President Biden’s pledge to lower costs,” said National Economic Advisor Lael Brainard.

Certain taxpayers in Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, Arizona, Massachusetts, California and New York can participate. Direct File can only be used to file federal income taxes, taxpayers from states that require filing state taxes will need to do so separately.

The Direct File pilot is part of the agency’s effort to build out a new government service that could replace some taxpayers’ use of commercial tax preparation software, such as TurboTax. It’s meant to be simple and provides a step-by-step walkthrough of easy-to-answer questions.

State-by-state eligibility info from the U.S. Treasury Department is below.

FEBRUARY 12, 2024:

In the coming weeks, South Dakotans will be given a chance to file their taxes online directly with the I-R-S– at no cost. As part of a pilot project offered in a dozen states, I-R-S officials hope the “Direct File” option will be ready by mid-March, giving taxpayers in selected states about one month to take advantage before the general filing deadline.

Jessie Schmidt, with the Better Business Bureau of South Dakota, says the pilot program is designed for those planning a straightforward federal return.

“[If] you’re just a direct W2 employee, and that’s where the majority of your income comes from, then direct finally may be just absolutely perfect.”

Those who plan to use certain credits, like the Child Tax Credit, are eligible, but Schmidt cautions there are similar credits that can’t be used with the pilot program.

“If you use the Child and Dependent Care Credit – so if you’ve got two kids in daycare and you’re using that dependent care credit – then you can’t use this.”

Schmidt says people can use the Direct File pilot program on a smartphone, tablet, laptop or desktop computer. The I-R-S says the option isn’t available for people who work in the “gig economy” and lean on 10-99 documents, nor for those who itemize deductions.

The Better Business Bureau says the pilot program doesn’t appear to have any red flags and does use a secure portal. However, larger tax preparation software companies have criticized the project, saying it won’t help people maximize their refunds.

The new service only applies to federal income tax returns and is separate from the I-R-S’s longstanding “Free File” option. Free File guides households with incomes below $79-thousand to outside vendors for no-cost, online filing.