IRS Direct File Program Officially Opens For Business

If you haven’t already filed your taxes, there’s a new way to file your federal return online for free, directly with the IRS for the first time. 

The IRS Direct File program pilot launched for all eligible users Thursday, following an initial test period that only allowed a limited number of participants to use it. The pilot program is still only available for residents of 12 states and only covers a limited number of tax situations (for example, not covering income from gig work) but IRS officials say they plan to expand the program in future years.

The pilot is the first step in an IRS effort to bring the U.S. tax system in line with other developed countries, most of which allow people to do their taxes online directly through their governments. Until now, taxpayers filing online have had to go through third parties, often for a significant fee. Popular tax prep software TurboTax, for example, charges as much as $209 this year.

When the direct file program is fully developed, it could save taxpayers billions, according to an analysis this week by the Economic Security Project, a nonprofit think tank. Between not having to pay fees to companies and spending less time filing, taxpayers will save $11 billion a year—about $160 per person—and low-income families will be able to claim $12 billion in tax credits they’re currently missing out on, the group found in a report.

“Initial users have saved hundreds of dollars and reported that the tool is simple and straightforward to use,” Deputy Secretary of the Treasury Wally Adeyemo said on a conference call with reporters.

Tax prep companies are pushing back against their new government-sponsored competition, pointing out that there are several ways that people can already file their taxes for free. Taxpayers with incomes less than $79,000 who meet certain other requirements, can file for free through third-party companies using the IRS Free File program. Companies including TurboTax also offer free filing options outside that program, with limits on income and what deductions can be claimed.

About a third of taxpayers in the 12 pilot states of the IRS’s new in-house program are eligible to use it, covering about 19 million people, the IRS said. The website can be accessed on tablets, computers, and smartphones, and is available in Spanish as of 1 p.m. Tuesday, the IRS said. 

The program was authorized by the Inflation Reduction Act of 2022, which provided funding for the tax agency to expand enforcement and improve customer service.

The IRS plans to use the information gathered during the pilot rollout to expand the program in future tax seasons to cover more tax situations in a wider section of the country.