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.