IRS Direct File Program: Permanent Status and State Decisions
The Wall Street Journal (Julie Zauzmer Weil) 8/5/24 published an article titled “The IRS has opened its free tax filing for all states. Which ones will join?”. The article discusses how, in 2024, the IRS offered 12 states the chance to try Direct File, a new free tax tool allowing taxpayers to file federal taxes directly with the IRS. As of May 2025, the Biden administration announced it would make Direct File permanent and invite every state to join. So far, New Mexico, New Jersey, Oregon, and Pennsylvania have all opted to join. The IRS did not announce a deadline for states to join Direct File, but states need to join soon so that there is enough time to set up their specific tax filing website.
The Direct File Debate
Democrats favor this free and easy tax-filing site for basic returns, similar to systems in other countries. On the other hand, Republicans argue against spending on a service already provided by companies like Intuit and H&R Block.
Last month, Congressional Republicans introduced a bill to stop the IRS from continuing Direct File. In a letter to IRS Commissioner Danny Werfel, Republican senators argued that a recent Supreme Court ruling suggests agencies like the IRS shouldn’t create programs beyond Congress’s clear intent.
Program advocates say it appears beneficial to many nonpartisan state tax officials because it makes filing taxes more accessible, attracting more people to do so. Governor Phil Murphy of New Jersey believes the program will save the state money by encouraging more residents to file online instead of using paper forms, reducing processing costs.
State Concerns Over Joining Direct File Program
Revenue administrators in many states are cautious about joining a new, permanent Direct File program. States need their own online tax filing option to link with the IRS site. While some states already have this or can implement it easily, others face challenges. Developing or upgrading such a system can be costly and time-consuming, deterring participation. Some states have hired Fast Enterprises to link their systems, as many already use their software. States continue to evaluate the long-term sustainability and costs of joining the program.
Current Direct File Restrictions and Upcoming Changes
States joining Direct File will only offer free tax filing to some. The pilot program excluded gig workers, itemizers, marketplace health plan users, and others. The IRS plans to expand eligibility in 2025 but still needs to provide details. Bridget Roberts, who manages the IRS site, wants to add the child and dependent care credit next year, as its absence deterred many taxpayers this year.
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