For some of you reading this, filing your taxes may be easier and less expensive in 2025. Thanks to the IRS’ new Direct File program, some taxpayers can now file for free directly with the IRS, bypassing commercial tax software. Not everyone will be able to take advantage of Direct File, though. Keep reading to find out what Direct File is and whether or not you qualify.
A new way to file
President Joe Biden’s Inflation Reduction Act, signed into law in 2022, tasked the IRS with creating a direct file tax system, giving them $15 million and nine months to figure it out.
Accordingly, in 2024, the IRS experimented with a new program called Direct File. This allows taxpayers to prepare and file returns directly with the IRS, without the aid of commercial tax prep software. First rolled out in 12 states—Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming—the program was only available to taxpayers who had simple W-2s and lived in those specific states. These taxpayers could submit their returns directly to the IRS, for free. Its users claimed over $90 million in tax refunds.
Reaching more taxpayers
In 2025, Direct File will be expanded to residents of 24 states—including Alaska, Connecticut, Idaho, Kansas, Maine, Maryland, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, and Wisconsin—and will cover taxpayers who have 1099 income and credits such as the Child and Dependent Care Credit, Health Savings Accounts deductions, and Retirement Savings Contributions Credit. This will make Direct File available to over 30 million taxpayers.
The IRS has confirmed that Direct File will be a permanent program and that the IRS will continue to make it available to more taxpayers. More states may also join in 2025. The program is free, which means paying for tax filing software may soon become a thing of the past.
Direct File: good or bad?
While this may be a new concept in the U.S., citizens of other countries, such as Germany and Japan, already use similar programs and pre-populated tax forms. Of course, it’s not a popular idea among providers of commercial tax preparation software.
In the past, the IRS has had an agreement with some of these companies to provide free tax preparation services to taxpayers with low and middle incomes. Known as the Free File Alliance, this is different from the IRS’ new Direct File program. According to a general report released by an IRS inspector, the IRS has failed to adequately protect data related to the Free File Alliance.
Do I qualify for Direct File?
If you qualify, you’ll be able to start using Direct File in early 2025 for federal, not state, returns. But not everyone will qualify. You’ll need to:
Have lived in one of the following states for the entirety of 2024:
Alaska
Arizona
California
Connecticut
Florida
Idaho
Kansas
Maine
Maryland
Massachusetts
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Oregon
Pennsylvania
South Dakota
Tennessee
Texas
Washington state
Wisconsin
Wyoming
Have only the following types of income:
W-2 wage income
SSA-1099 Social Security income
1099-G unemployment compensation
1099-INT interest income
1099- R retirement income
1099-MISC for Alaska residents reporting the Alaska Permanent Fund Dividend
Claim only the following credits:
Earned Income Tax Credit
Child Tax Credit
Credit for Other Dependents
Child and Dependent Care Credit
Premium Tax Credit
Credit for the Elderly or the Disabled
Retirement Savings Contributions Credit
Take only the following deductions:
Standard deduction
Student loan interest
Educator expenses
Health Savings Account
If you itemize your deductions and/or have any income or claim any credits outside of those listed above, you’ll need to find another way to file.
The IRS will be rolling out an Eligibility Checker for Direct File soon, but until then, you can find more info here.