Personal Finance News
IRS Expanding Direct File Tool for 2025 Tax Filing Season
In time for the 2025 tax filing season, the Internal Revenue Service will be expanding Direct File in a few different ways.
About the expansion:
The IRS has some major expansion plans for its Direct File service. First, after a 12-state pilot last year, the tool will be available in twice as many states next year. The complete list now includes:
- Alaska
- Arizona
- California
- Connecticut
- Florida
- Idaho
- 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
In total, the agency says that more than 30 million taxpayers will now be eligible to use the service. The IRS also suggests that not only could more states still join the program in 2025 but that others have also expressed interest in coming aboard for 2026.
Another aspect of the Direct File expansion will be the types of tax situations supported by the service. Previously, the tool only covered certain types of income (including W-2s, Social Security, and unemployment compensation) as well as limited credits and deductions. However, starting in 2025, 1099 forms with income exceeding $1,500 will also be supported as will retirement income. Additionally, 1099s related to the Alaska Permanent Fund will be eligible as the service expands to that state.
In terms of credits, in addition to the Earned Income Tax Credit, Child Tax Credit and Credit for Other Dependents, new updates will bring support for the Child and Dependent Care Credit, Premium Tax Credit, Credit for the Elderly and Disabled, and Retirement Savings Contribution Credits to the tool. As for deductions, Health Savings Accounts will now be supported, joining existing deductions including the standard deduction along with deductions for student loan interest and educator expenses.
What they’re saying:
Announcing the updates coming to Direct File next year, IRS Commissioner Danny Werfel stated, “We’re excited about the improvements to Direct File and the millions more taxpayers who will be eligible to use the service this year. Above all, our goal is to improve the experience of tax filing itself and help taxpayers meet their obligations quickly and easily. Direct File will be a critical part of achieving that goal as we expand and improve the service.”
My thoughts:
The fact that the IRS’s Direct File tool will already be available to taxpayers in nearly half of all states after a single pilot year feels like a pretty big deal. Moreover, the updates to the types of income and deductions supported also cover some pretty major ground. Hopefully this means that, soon, even more Americans will be able to prepare and file their taxes for free rather than relying on paid third-party services.
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