Free IRS Direct File Program To Become Permanent In 2025

The Internal Revenue Service’s experimental Direct File free tax-filing program will become a permanent option starting with the 2025 filing season.

The decision follows a successful pilot run earlier this year. Some 140,000 eligible taxpayers used Direct File to claim more than $90 million in refunds while saving an estimated $5.6 million in filing costs, the IRS and Treasury Department said in a news release announcing the decision.

This year, Direct File was available only to taxpayers with simple returns who live in eight states that do not have a state income tax, as well as Arizona, California, Massachusetts and New York. However, for the coming year, the IRS has said that service will be expanded and there will be no limit on the number of states that can participate.

“Giving taxpayers additional options strengthens the tax filing system,” said IRS Commissioner Danny Werfel in a statement. “And adding Direct File to the menu of filing options fits squarely into our effort to make taxes as easy as possible for Americans, including saving time and money.”

Direct File could save the average user about $150 in filing fees each year and help ensure that taxpayers receive all the tax credits they are eligible for, such as the child tax credit and earned income tax credit. It could also emerge as a strong competitor to some other tax preparation methods.

“Those who go to CPAs are typically taxpayers who have more complicated tax returns. I do not believe CPAs will feel any pressure from Direct File,” says Reem Khatib, partner at Tax Law Advocates in Santa Ana, California.

Online tax preparation services that offer free versions will feel the brunt of the pressure from this new option, Khatib contends.

Direct File Popular With Users, IRS Says

During the now-concluded pilot program, the Direct File app let eligible taxpayers electronically submit their federal tax returns for free using a cellphone, laptop or desktop computer. The software, available in English and Spanish, allowed users to chat with an IRS employee for technical help or clarification of basic tax law.

In a follow-up evaluation, most users said they were satisfied with the experience. Feedback was overwhelmingly positive, with 90% of respondents rating their experience as “excellent” or “above average” in a GSA Touchpoints survey.

Taxpayers told IRS and Treasury Department representatives that they appreciated that Direct File is always free, with no hidden fees or upselling. They also said that filing directly with the IRS gave them confidence and allowed them to correct any errors quickly.

However, the IRS said it also heard from “a limited number of stakeholders who believe the current free electronic filing options provided by third party vendors are adequate.”

After gathering user feedback, reviewing survey results and analyzing additional data, IRS Commissioner Danny Werfel wrote to Secretary of the Treasury Janet Yellen recommending that Direct File be made available permanently.

Who Is Eligible to Use Direct File for Taxes in 2025?

Direct File is currently designed for taxpayers with straightforward tax returns, such as those with W2s or Social Security income who take the standard deduction. It doesn’t work for people with more complex individual returns or those filing business returns.

The IRS is looking for ways to make Direct File applicable to more tax situations and is inviting all states and the District of Columbia to participate in the program next year, the agency said.

While Direct File could help many taxpayers save time and money, millions could be left out, says Chad D. Cummings, a tax attorney and certified public accountant in Naples, Florida.

“Those with more complex tax situations, including high-net-worth individuals, business owners, entrepreneurs, and investors, will continue to need expert guidance from qualified tax preparers, including CPAs and attorneys,” Cummings says.

“This is because the IRS Direct File program will only address tax compliance; it does not speak to the need for comprehensive, holistic tax planning,” he adds.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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