IRS Makes Free Tax Return Program Permanent, Invites States for 2025

TL/DR –

The IRS has announced plans to permanently implement a free electronic tax return filing system, which was trialed this year. Invitations have been extended to all fifty states with a state income tax to assist taxpayers in filing their returns for free. Since its initiation in March, over 140,000 taxpayers have used the system to claim over $90 million in refunds.

IRS Makes Free Electronic Tax Return Filing System Permanent

The IRS has announced its decision to adopt the free electronic tax return filing system, experimented with during the 2024 tax season, permanently. The agency is now requesting collaboration from all 50 states and the District of Columbia for implementing the program by 2025.

The Direct File program was initially trialed on a limited scale for individuals with simple W-2s in 12 states. States with an income tax are now invited to assist residents in filing their state tax returns for free. The 2024 pilot involved tax authorities from Arizona, Massachusetts, California, and New York assisting taxpayers in direct filing of state taxes.

IRS Commissioner Danny Werfel said that the agency will disclose how many states plan to join the program in 2025 later this year.

As part of the Inflation Reduction Act of 2022, the IRS was tasked with creating this “direct file” system. The Act provided the IRS nine months and $15 million to explore how such a program would work.

According to Treasury Secretary Janet Yellen, the new system is a much-needed improvement, stating, “Thanks to the Inflation Reduction Act, we’re changing this.”

Since the Direct File trial began in March, over 140,000 taxpayers have utilized it, claiming over $90 million in refunds. Werfel sees the program’s expansion as a way to make filing taxes easier and more cost-effective for Americans.

Despite pushback from private tax preparation companies, Werfel believes they have sufficient information to proceed with the decision. However, for the Direct File program to continue growing, it requires continued funding under the Inflation Reduction Act, which initially allocated $80 billion to the IRS.

House Republicans have reduced IRS funding by $1.4 billion under the debt ceiling and budget cuts package passed last year. An additional $20 billion will be diverted from the IRS over the next two years to nondefense programs.

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