IRS Free Tax Filing Program Becomes Permanent and Available Nationwide in 2025

The Internal Revenue Service (IRS) building in Washington on Jan. 4, 2024. Madalina Vasiliu/The Epoch Times

The Internal Revenue Service (IRS) has announced that it will make Direct File, its free tax filing program, a permanent option for filing federal tax returns beginning in the 2025 tax season.

The IRS said on May 30 that the decision to make Direct File available nationwide and invite all states to participate in the program follows what it described as a “successful” pilot in 12 states during the 2024 filing season.

Over 140,000 taxpayers in 12 states used the IRS’s free tax filing platform during the pilot. The agency said that, after surveying 11,000 of such taxpayers, it found that 90 percent ranked their experience with Direct File as “excellent” or “above average.”

Additional feedback was received from hundreds of organizations, over a hundred members of Congress, and potential future users of Direct File, the IRS said. While some stakeholders expressed the view that the current free electronic filing options provided by third-party vendors are adequate, the agency said the overall response was overwhelmingly positive.

“The clear message is that many taxpayers across the nation want the IRS to provide more than one no-cost option for filing electronically,” IRS Commissioner Danny Werfel said in a statement. “So, starting with the 2025 filing season, the IRS will make Direct File a permanent option for filing federal tax returns. Giving taxpayers additional options strengthens the tax filing system.”

Opposition

Republicans have expressed opposition to Direct File, with a group of 13 GOP Attorneys General saying earlier this year that the IRS lacks the authority to roll out such a program, arguing that it would harm low-income Americans and pointlessly cost taxpayers millions of dollars when there are similar private industry solutions.

They also argued that there is a conflict of interest when the IRS acts as a tax preparer, filer, and auditor.

“Congress has never granted the Department of the Treasury authority to create a Direct File program. And for good reason: the American taxpayers do not want to invite the proverbial fox into the hen house,“ the Republican officials wrote in a Jan. 30 letter to Treasury Secretary Janet Yellen. ”A Direct File program will also have negative consequences for low-income filers and devastate small businesses.”

Mr. Werfel defended the program in a hearing in Congress in mid-February, saying it was an “option” and nobody would be forced to use it.

The IRS chief reiterated this view in a May 22 letter to Ms. Yellen, writing that Direct File “is not meant to replace other important options by commercial providers.”

He cited data showing that 90 percent of pilot participants who responded to the survey rated their experience as “above average” or higher, and 86 percent said it boosted their trust in the IRS. Mr. Werfel also boasted that survey respondents gave Direct File a score of +74 (on a scale from -100 to +100) for how likely pilot participants were to recommend the platform to friends and family.

Arguing that taxpayers like Direct File and that it makes the tax filing experience easier, the IRS chief recommended that the Direct File program be made a permanent option nationwide for filing federal tax returns, with Ms. Yellen issuing a letter on May 28 giving her nod of approval.

“Tax filing on average costs American households $270 a year,” Ms. Yellen wrote. “Direct File will eliminate this cost for working- and middle-class taxpayers that choose to use this tool.”

The Treasury Department said in a statement that the 140,000 or so taxpayers who took part in the pilot claimed over $90 million in refunds and saved an estimated $5.6 million in filing costs.

State and Eligibility Expansion

In announcing that Direct File would become a permanent fixture of the tax filing landscape in the United States, the IRS said it’s exploring ways to gradually expand the scope of tax situations supported by the platform.

The initial version of Direct File focuses on handling wage income rather than investment income and can process a limited number of tax credits, such as the child tax credit.

The IRS said in a May 30 statement that the goal is to support most common tax situations, focusing in particular on those impacting working families.

In May 2023, the IRS released a report to Congress that said most taxpayers were interested in such a program but noted that taxpayers would be more interested in such a solution if it included support for filing state tax returns.

An analysis from an independent third party on the feasibility of the Direct File system, which was included in the IRS’s report to Congress, was carried out by New America and professor Ariel Kleiman, an associate professor of law at Loyola Law School, Los Angeles.

Mr. Kleiman and New America wrote in their analysis that for the new system to be successful, it must address key issues like customer support, data privacy, and security, while recommending that it be rolled out gradually.

The IRS said in its May 30 statement that part of the nationwide rollout of the program involves inviting all states to partner with Direct File in the 2025 tax season.

Announcements about new state partners and expanded eligibility are anticipated in the coming months, the IRS said.