It’s no secret the IRS rolled out the red carpet for its new tax filing system: Direct File. The now permanent program generally allows taxpayers under $200,000 adjusted gross income (AGI) to file their taxes directly with the IRS — for free.
Last year’s pilot with 12 participating states proved a success. According to the IRS, more than 140,000 taxpayers filed their taxes through the program and more than 90% reported the experience as “Excellent” or “Above Average.” The agency says total tax refunds issued were in the millions.
So now the IRS has invited all 50 states and the District of Columbia to play ball for the upcoming 2025 tax season. But not everyone is on board.
Who knew filing your taxes online could be debatable?
Related: IRS Direct File Will Be Permanent
Which states allow IRS Direct File?
So far, seven new states have signed on for the permanent Direct File program: New Jersey, New Mexico, Oregon, Pennsylvania, Connecticut, Maine, and North Carolina. Governors of those states have touted the perks of Direct File.
For example, Gov. Tina Kotek, who represents Oregon, the first state to sign on to the new program, reached out on the social media site X (formerly Twitter) to spread the news.
“The Direct File Program is a game-changer for taxpayers. This free filing option will save Oregonians time and money when filing next year,” Kotek wrote.
In a release, Gov. Josh Shapiro (D-Pa.) described the program as “free and easy”, while Gov. Michelle Lujan Grisham (D-N.M.) expressed a similar sentiment in her own press release earlier this month.
The dozen states in the Direct File pilot program last tax season include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State, and Wyoming. Those states are expected to return for the 2025 filing season.
Note: While Maine has signed onto the program, only certain federal returns will be included in the 2025 filing season. Maine residents can expect to file state returns via Direct File in the 2026 tax season.
What states won’t allow Direct File?
To participate in IRS Direct File, states need a proper IT infrastructure. The program requires a new-ish online filing system. States that haven’t recently invested in their online capabilities, may be left in the dust.
According to a letter obtained by a local Virginia news outlet, Gov. Glenn Youngkin (R-Va.) cited that rationale when he announced Virginia was opting out of IRS Direct File. The Commonwealth reportedly has an antiquated online revenue management system and doesn't have the budget to implement Direct File. But above all, Youngkin pointed to what he sees as a larger legal issue.
“Current law does not authorize this approach and therefore a legislative change must be adopted by the General Assembly prior to participation in the new program,” the governor wrote to House Representatives and State Senators.
Notably, Alabama Gov. Kay Ivey (R-Ala.) says the Yellowhammer State is opting out of Direct File due to legal issues as well.
Other states, like Montanna and Nebraska, haven’t officially opted in or out. But there is chatter…
Twelve attorney generals in Montanna wrote to the Treasury Department opposing the Direct File system calling the Direct File program “unconstitutional,” adding, “Congress has never granted the Department of the Treasury authority to create a Direct File program.”
The feeling is reflected in a bill, the “IRS Overreach Prevention Act”. Nebraska and North Carolina House Republicans proposed this bill, arguing three key points. Namely, they claim, the IRS:
- Has not been transparent with its data
- Has overreached its limitations
- Will use the data harnessed in Direct File to levy more tax audits
What do I do if my state doesn’t adopt Direct File?
Most folks who live in the 31 other states and commonwealths (or the District of Columbia) don’t know if they will be covered. Until we hear more, here is a list of things you can do to save money on tax prep and filing this upcoming tax season.
- Read up on other ways to file your taxes for free
- Check out your state’s Department of Revenue website for any additional qualifying programs
Alternatively, you may be eligible for the longstanding IRS program Free File. Free File works with IRS partner tax preparation providers (so you don’t directly file with the IRS).
Since Free File is designed to help taxpayers with lower incomes; for the 2023 tax year, your adjusted gross income (AGI) had to be $79,000 or less. Though for many years, the program was underutilized, the IRS saw an uptick in use last year.
Lastly, continue to follow the great debate on the IRS Direct File. It may clue you in on whether you’ll be celebrating the New Year or running out to buy tax prep software this winter. Staples, anyone?
