It's officially tax season, and filers in half of U.S. states now have access to a new, direct free filing system from the Internal Revenue Service that can in many cases take the place of private tax prep software that costs the average taxpayer $270 each year.
Taxpayers living and working in 25 states can use the IRS's Direct File option, which lets them file online directly with the IRS for free. The program guides filers through some basic questions, and also points them to their state returns. It is available in English and Spanish.
The states participating include (those who didn't live and work in one of these states for all of 2024 cannot use Direct File):
- Alaska
- Arizona
- California
- Connecticut
- Florida
- Idaho
- Illinois
- 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
Direct File is a relatively new system that was tested in a pilot phase in select states last year. It's the IRS's answer to increasing calls from the public for a government-run, free alternative to private tax preparation software like TurboTax. Last year, Direct File processed approximately 140,000 federal returns in 12 states, according to the Treasury Department. That's an estimated savings of $5.6 million in tax-prep fees.
Not every taxpayer in those 25 states will be able to use Direct File. While it can support W2 wage income and some retirement income, it cannot process gig economy, rental or business income. It also doesn't work for those who itemize their deductions. State returns must also be filed elsewhere.
"This is now, and will probably always be, limited to people with very simple tax returns. And that’s a great thing, that’s what [the IRS] should be doing," Bill Harris, the former CEO of PayPal and TurboTax parent company Intuit, previously told Fortune. "They should be making it as easy as possible for those people."
The IRS has offered a different free filing option that partners with third party private prep companies for those earning under a certain income level for over two decades. While most Americans actually qualify for this system, only an estimated 2% use it.
Most Americans pay a tax professional or pay for software to file their taxes themselves each year. That is partly because of the sheer complexity of the U.S. tax code—there are countless credits, deductions, and other considerations—and partly because of the tax preparation industry, which spends millions lobbying Congress each year to discourage simplifying the system.
The IRS began accepting and processing federal returns on Monday, and reported already receiving millions of them as taxpayers across the nation get an early jump on filing. Taxes are due April 15, although there are exceptions, including for those living in a federally declared disaster area.
As always, the agency encourages taxpayers to file electronically and choose direct deposit for their refund to receive it most securely and quickly. "According to Treasury’s Bureau of the Fiscal Service, paper refund checks are 16 times more likely to have an issue, like the check being lost, misdirected, stolen or uncashed," the agency said in a press release.
