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The Internal Revenue Service is moving Direct File out of beta and taking that free tax-prep app nationwide—or at least to a larger selection of states. The IRS announced Thursday that after a successful 12-state pilot, it will offer Direct File in “all states that want to partner with Direct File” for next year’s tax season.Asked if states could effectively veto the IRS allowing their own taxpayers to file their federal taxes through Direct File, an IRS spokesperson pointed to a report (PDF) the agency published last May that argued taxpayers might resent a federal direct-filing solution that didn’t feed into a state direct-filing option.The IRS also plans to build out Direct File’s support for more tax scenarios than the basic situations the app handled this year. Per its announcement: “Over the coming years, the agency’s goal is to expand Direct File to support most common tax situations, with a particular focus on those situations that impact working families.”The agency announced Direct File last October after a provision of the Inflation Reduction Act directed the IRS to explore the program. The initial test was confined to taxpayers in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming. A strict set of eligibility criteria further limited Direct File’s reach when it went live in March as a desktop and mobile web app. Among them: Taxpayers could not report income beyond wages, Social Security, unemployment, or at most $1,500 in interest income (which excluded gig-economy workers); could not exceed income limits that ranged from $125,000 to $250,000 depending on household filing status; could only claim three types of credits; and had to take the standard deduction.But the IRS reported in April that taxpayers who used Direct File generally loved it and saved an estimated $5.6 million in fees they would have paid if they’d purchased commercial tax-prep software. The IRS itself spent $24.6 million during the pilot, with its operational costs adding up to $2.4 million. The participation numbers the IRS shared then suggest interest exceeded eligibility: More than 3.3 million taxpayers at least starting to check if they would qualify, 423,450 taxpayers logged into Direct File, and 140,803 taxpayers filed returns through this app and had them accepted. Intuit, which has a long history of battling both state and federal moves to offer direct filing services that would compete with its TurboTax franchise, did not find those stats persuasive.
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“Today’s decision by Treasury and the IRS to expand Direct File doesn’t change the fact that this program is a solution in search of a problem and every American can already file their taxes for free, without any cost to the government or taxpayers,” says Intuit spokeswoman Tania Mercado.Intuit’s free version of TurboTax is subject to return-complexity limits on a par with Direct File’s, but the free Cash.App Taxes covers most IRS forms and schedules.Intuit’s statement added that the 140,000-plus taxpayers who successfully filed via Direct File represented .07% of the 19 million that the IRS had said could be eligible to use it and compared that to the “millions of completely free tax returns” TurboTax provides each tax season.The IRS announcement describes Direct File as a “permanent” addition to tax-filing options. But presumptive GOP presidential nominee Donald Trump’s pledges to do favors for campaign donors and Intuit’s aggressive lobbying to stop government-run direct-file systems suggest that if voters return Trump to the White House, Direct File will wind up on the other side of a shredder.
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