IRS announces Direct File as permanent free tax-filing option starting next year

The Internal Revenue Service announced Thursday that its experimental Direct File free tax-filing option for simplified tax returns would become a permanent option starting next year.

In a release, the IRS, along with the U.S. Treasury Department, said its Direct File pilot program, which rolled out on a limited basis earlier this year, saw 140,000 taxpayers claim more than $90 million in refunds and save an estimated $5.6 million in filing costs.

“President Biden is committed to saving Americans time and money and ensuring families receive the tax benefits they’re owed. Providing a free tool to all Americans who want the option to file directly with the IRS is key to achieving those goals,” said U.S. Secretary of the Treasury Janet L. Yellen in a statement.

“After a successful pilot, we are making Direct File permanent and inviting all 50 states to offer this free filing option to their residents. The Treasury Department and IRS look forward to working with states to expand Direct File to Americans across the country.”

Direct File is designed for filers with relatively straightforward tax returns — like W2s or Social Security income — and who take the standard deduction. Other types of income, like those from gig work or other business returns, are not eligible.

Direct File is not a required government program, and does not replace existing filing services.

But advocates have long called for a program to reduce or even eliminate the cost of filing, especially in the digital age.

“President Biden is focused on lowering costs and making the tax system fairer for Americans, and that includes providing a free and simple way to file taxes, with no expensive and unnecessary filing fees and no upselling,’ National Economic Advisor Lael Brainard said in a statement.

Brainard applauded Biden, saying the administration’s ‘investment in modernizing the IRS is already paying off, and we’re looking forward to this resource being available to more Americans across the country.”

For filers subject to state income taxes, their states must opt-in to Direct File. Twelve states have already signaled opposition to doing so, echoing complaints by TurboTax parent Intuit that Direct File is a waste of taxpayer resources.

But a survey released by the White House showed 90% of respondents ranked their experience with Direct File as “excellent” or “above average.”

“The numbers speak for themselves: the Direct File Pilot was a success, saving American taxpayers countless hours and millions of dollars filing their taxes,’ said White House Deputy Chief of Staff Natalie Quillian in a statement. ‘Now, we’re bringing the program to a national audience. It’s just one more example of how President Biden’s Investing in America agenda is lowering costs for communities across the country.”