Direct File is becoming a permanent filing option, IRS announces

The Inter­nal Rev­enue Ser­vice has decid­ed to make its suc­cess­ful Direct Fil­ing option per­ma­nent and expand it to all fifty states, in a huge win for taxpayers.

The agency announced its deci­sion in a news release today.

“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, who is also a for­mer Fed Chair.

“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.”

Wash­ing­ton was among the states that par­tic­i­pat­ed in that pilot. 

With Direct File, tax­pay­ers can save both time and mon­ey and cut out the mid­dle­man. Rather than pay­ing com­pa­nies like Intu­it, which owns Tur­b­o­Tax, to file, tax­pay­ers can sub­mit their returns direct­ly at no cost, with zero upsells or gimmicks. 

“The aver­age Amer­i­can spends $270 and 13 hours fil­ing their tax­es,” Trea­sury’s news release went on to men­tion. “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.”

The North­west Pro­gres­sive Insti­tute strong­ly sup­port­ed the pilot and wel­comes today’s deci­sion along with the rest of the Coali­tion for Free and Fair Filing. 

“The scale for the first year of Direct File was inten­tion­al­ly small,” not­ed the Insti­tute on Tax­a­tion and Eco­nom­ic Pol­i­cy (ITEP). “But as the pro­gram grows, it could make tax fil­ing free and easy for even more Amer­i­cans. To has­ten this expan­sion, state gov­ern­ments should opt into the pro­gram for next year’s tax fil­ing season.”

“Peo­ple who used Direct File in its inau­gur­al year were impressed. Of the 15,000 Direct File users who par­tic­i­pat­ed in an IRS sur­vey, 90 per­cent ranked their expe­ri­ence as excel­lent or above aver­age, and 94 per­cent would rec­om­mend the ser­vice to a friend or fam­i­ly mem­ber. Direct File has tremen­dous poten­tial to make tax fil­ing less expen­sive, faster, and eas­i­er for mil­lions of Amer­i­cans. By break­ing down bar­ri­ers to fil­ing, it can also help more low- and mod­er­ate-income fam­i­lies get tax cred­its they’re eli­gi­ble for, like the Earned Income Tax Cred­it and Child Tax Credit.”

“Research from Code for Amer­i­ca and the Eco­nom­ic Secu­ri­ty Project found that, at matu­ri­ty, Direct File could save the aver­age user $160 in fil­ing fees and hours of their time each year, which pro­vides Amer­i­cans a total of $11 bil­lion annu­al­ly between fil­ing fees and time costs. It could also deliv­er up to $12 bil­lion a year in addi­tion­al fed­er­al tax cred­its to eli­gi­ble fam­i­lies.” (Fol­low this link to read that research.)

“The 2024 Direct File pilot was an enor­mous step for­ward in pro­mot­ing equi­table access to the tax sys­tem,” said Aman­da Rente­ria, CEO of Code for Amer­i­ca.

“By adopt­ing best prac­tices in civic tech­nol­o­gy, start­ing small, and always putting tax­pay­ers first, the IRS deliv­ered a prod­uct that peo­ple loved, and proved beyond a doubt that the gov­ern­ment can make it eas­i­er for Amer­i­cans to file their returns.”

“A crit­i­cal com­po­nent of Direct File is cre­at­ing a seam­less and inte­grat­ed process for tax­pay­ers to eas­i­ly file state tax returns with­out start­ing from scratch,” Rente­ria con­tin­ued. “Code for Amer­i­ca looks for­ward to help­ing bring Direct File to more tax­pay­ers in more states through the expan­sion of our FileY­ourState­Tax­es tool.”

As pro­gres­sives, we believe in eco­nom­ic secu­ri­ty, broad pros­per­i­ty, and fair rev­enue. We enthu­si­as­ti­cal­ly sup­port poli­cies that will low­er costs for Amer­i­can fam­i­lies, espe­cial­ly low- and mid­dle-income house­holds. Direct File is such a pol­i­cy. It puts mon­ey back in peo­ple’s pock­ets with­out harm­ing the pub­lic ser­vices we all rely on, unlike tax cuts and forced aus­ter­i­ty mea­sures, which are incred­i­bly destructive. 

The giants of the tax prepa­ra­tion indus­try like Intu­it don’t like Direct File because it pro­vides a bet­ter expe­ri­ence at less cost to tax­pay­ers. But it’s an option that Amer­i­cans deserve to have. Intu­it may find in the future that Tur­b­o­Tax isn’t the same mon­ey­mak­er it has been in the past, but we have no doubt the prod­uct will endure — and the suc­cess of Direct File may prompt Intu­it to make Tur­b­o­Tax bet­ter and less expensive. 

Cheers to the IRS for mak­ing this deci­sion and begin­ning the work to make Direct File avail­able to tax­pay­ers in all fifty states start­ing in 2025.