IRS makes Direct File permanent

The IRS is making Direct File permanent, the agency announced on Thursday. 

The government-backed tool, piloted during the most recent tax season, allowed taxpayers in some states to file directly to the IRS online for free. 

The agency says that it will be expanding eligibility for the tool, which was limited to people in 12 states with simple tax situations during the pilot. 

In the 2025 filing season, the IRS will work with all states that want to offer the tool. The tax agency says that it wants to gradually expand the scope of the tool over the coming years so that it supports most common tax situations. 

“Meeting your tax obligations and claiming the credits and deductions for which you're eligible should be easy,” Treasury Secretary Janet Yellen told reporters Thursday. 

The agency says that Direct File will not replace existing tax filing options, including the decades-old partnership the IRS has with tax prep companies to offer free filing options for many taxpayers, called Free File. 

“The clear message is that many taxpayers across the nation want the IRS to provide options for filing electronically at no cost,” said IRS Commissioner Danny Werfel. “Direct File is an important component of a stronger, comprehensive tax system that gives taxpayers electronic filing options that best suit their needs.”

Those that used the pilot this year saved an estimated $5.6 million in tax prep fees on their federal returns, according to the IRS. The average taxpayer spends $150 preparing taxes annually.

The IRS also said that they saw positive reactions among the 140,803 individuals that used the Direct File pilot this year — 90% of those that completed the process rated their experience as excellent or above average, although those that didn’t finish the process weren’t surveyed.  

Exactly where and to whom the tool will be open next year is still to be determined. 

In the most recent tax filing season, only four of the 12 states offering Direct File also had state-level income taxes. 

Two of those — Arizona and New York — worked with civic tech nonprofit Code for America to build an integrated state filing tool that allowed users to finish filing without starting from scratch. California and Massachusetts also built state-level tools.

Code for America announced Thursday that it will also be expanding its FileYourStateTaxes program with state governments moving forward.

Werfel said that there’s a $75 million placeholder for Direct File in the fiscal 2025 budget, a number the IRS doesn’t expect to significantly exceed. The cost for the pilot was $31.8 million.

The IRS began the pilot after studying the feasibility of such a system, as directed by Congress in the 2022 Inflation Reduction Act. The pilot, built with the help of the U.S. Digital Service, 18F and vendors, opened incrementally to taxpayers after testing in February, before the full release in early March. 

“We're mindful that the most important decision we made during the pilot was to focus on executional certainty,” Werfel said. “We took the time to get it right… We will apply that same critical lesson next year as we take a strategic approach to expanding Direct File’s availability and capability. User experience, both within the product and the integration with state tax systems, will continue to be the foundation for Direct File moving forward.” 

The decision to offer a government-backed tool brings the IRS in line with the rest of the world, Nina Olson, the former National Taxpayer Advocate and current executive director of the Center for Taxpayer Rights, previously told Nextgov/FCW.

Still, the tax agency will likely face some negative pushback on the decision. Despite garnering praise from some one hundred plus Democrats on Capitol Hill, who’ve urged the IRS to make the offering permanent, some Republicans on Capitol Hill have criticized the program, as have tax prep companies. 

Asked about the potential impact on Direct File from a change in control within Congress or the White House, Werfel told reporters that “the vision that the IRS has for tax administration is a nonpartisan one… We also think that it is nonpartisan that taxpayers should have options for how they file and that the broader the menu of options, the better.”

Editor's note: This article has been updated to include the announcement from Code for America.