Direct File has been one of the IRS's most popular and successful programs in recent years. In 2025, it will expand significantly and become available to twice as many states. In the coming tax year, residents of 24 states will be able to use Direct File for their taxes.
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This means that millions more Americans will be able to file their taxes online for free, without needing to pay potentially hundreds of dollars to services like TurboTax or H&R Block. They will also be able to file for their tax refunds online. That said, Direct Filing remains a pilot program that applies only to relatively basic tax situations. For itemized deductions and most forms of income beyond standard W-2 earnings, you will still need alternative tax solutions. The same is true if you are a resident of one of the 26 non-eligible states.
What Is Direct Filing?
Direct Filing is an IRS program that allows taxpayers to fill out and file their taxes online, replicating the services offered by private software like TurboTax and H&R Block. The program tells the users what information to enter, then automatically calculates any tax payments, deductions and applicable credits to calculate a final tax return. Users can then file this return electronically and instantly.
Unlike private services, however, Direct Filing is free.
Direct Filing is the IRS's attempt to answer several problems raised by the current state of the income tax code.
On average, Americans spend about nine hours and $150 per year preparing and filing their taxes, according to the U.S. Digital Service. That's just the paperwork burden for individual households, not counting businesses and other more complicated tax situations.
Congress also frequently uses the tax code to administer many different government programs. Through credits, deductions and special taxes, Congress issues means-tested assistance and attempts to create incentives that shape the economy, such as the mortgage-interest deduction.
This can be extremely useful for qualifying households. But when filing their paperwork, a taxpayer has to know they're eligible for these programs. In some cases like the Earned Income Tax Credit, the taxpayer also needs to make fairly difficult financial calculations.
And all of this is to say nothing of the difficulty involved with filing taxes on sources of income beyond W-2 employment. Calculating interest, investments, 1099, small business, real estate and other forms of income can be significantly time consuming and complicated.
Private tax preparation software can help with this mental burden, but at a not-insignificant cost. As noted above, the average household will spend around $150 trying to get their taxes right, much of it spent on prep software.
Benefits and Limits of Direct Filing
Direct File has its benefits and its drawbacks.
The first note is that, for eligible taxpayers, Direct File has been overwhelmingly popular. It has a 90% approval rating from users, and about three-quarters of people who use Direct File say they would recommend it and use it again.
This program was created through the Biden Administration's Inflation Reduction Act of 2022. In this bill, Congress and the White House directed the IRS to begin creating a free online filing system. While Americans can already file their taxes for free by mailing hard-copy paperwork, or sometimes with online forms through the agency's e-file system, this requires taxpayers to do the accounting work themselves. As noted above, that has become an increasingly heavy burden on individual households as Congress has made the tax code larger and more complicated.
After two years of research and development, the IRS launched Direct File as a pilot program in 2024. However, the program launched with significant limits.
In order to avoid overwhelming the new system, Direct File was only available to residents of 12 states: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State and Wyoming. It also only processes very basic tax returns. At launch the system accepted only the standard deduction, and a small number of above-the-line deductions. It also only accepted income from W-2 employment, Social Security and unemployment benefits, and a small amount of interest on Treasury bonds.
The program also has income caps, and does not accept returns for households with income exceeding $200,000 for single filers and $250,000 for married couples filing a joint return.
Direct Filing Comes to New States
For the 2025 tax filing season, Direct Filing will expand and become available to residents of 24 states, adding: Alaska, Connecticut, Idaho, Kansas, Maine, Maryland, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania and Wisconsin. Residents of all other states and territories still cannot use Direct Filing regardless of their tax situation.
The system still will not accept self-employment or business income, including 1099 income for freelance/gig workers. However, Direct Filing can now accept retirement income. It also still only accepts filings that use the standard deduction. However, the IRS has expanded the credits and deductions that Direct Filing can accept. The system can accept several new tax breaks, most notably deductions for health savings accounts.
The income caps remain in place. The IRS has not indicated if it will adjust those limits.
How to Use Direct Filing
If you are eligible for Direct Filing, you can find the program on the IRS website: directfile.irs.gov.
The system will go online once tax season begins in 2025. If you visit the site before that, you will get a notice that the pilot is currently closed. Tax season begins in or around late January/early February each year.
You can only use Direct Filing to file your annual income taxes. This means that you cannot update or change your taxes through this system, nor can you file quarterly taxes using it. However, if you are eligible, Direct Filing is free and generally well-received. For W-2 workers who live in one of the 24 qualifying states, it is very likely that this system is worth a look come 2025, as it might save you a significant amount of time and money.
Bottom Line
Last year, the IRS launched a pilot program for its new online tax filing software called Direct Filing. It is expanding this system in 2025, doubling the number of states that can use it to file their 2024 taxes and increasing the credits and deductions that the system can handle.
Tips on Tax Planning in Retirement
- Don't let your taxes catch you by surprise. Even the best-planned retirement can be derailed by unexpected tax bills, and those state and local taxes can be particularly sneaky. Instead, consider these five strategies for managing your taxes and retirement income.
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