IRS Permanently Extends Free Filing Option, Encourages State Collaboration

• The IRS announced an extension of its free electronic tax return filing system trial to all 50 states and the District of Columbia, aiming for nationwide implementation by 2025, after initially testing the Direct File initiative in 12 states for the 2024 tax season.
• The program will invite states with income taxes to participate and offer free state tax return filing assistance, with states like Arizona, Massachusetts, California, and New York having participated in the 2024 trial.
• Funded by the Inflation Reduction Act, the IRS received $15 million to explore and report on establishing a "direct file" system, and will provide updates later this year on state participation for 2025.

The IRS said on Thursday that it will extend its trial of a free electronic tax return filing system to all 50 states as well as the District of Columbia, requesting that they assist taxpayers in completing their forms through the program by 2025.

In 12 states, the IRS tested the Direct File initiative for taxpayers with very basic W-2s-the employee's wage and tax statement-limited to the 2024 tax season.

Additionally, the organization is extending an invitation to all states that impose state income taxes to join up and offer free state tax return filing assistance. Tax authorities in Arizona, Massachusetts, California, and New York assisted individuals with filing their state taxes directly during the 2024 experimental program.

IRS Commissioner Danny Werfel stated that the agency would provide an update on the number of states that want to take part in the program in 2025 later this year.

The IRS was given money from the Inflation Reduction Act, which President Joe Biden signed into law in 2022, and was entrusted with investigating ways to establish a "direct file" system. The IRS was given $15 million and nine months to report on the operation of this kind of scheme.

IRS Direct File Experiment Sees Success Amidst Controversy

More than 140,000 people have filed their tax returns using the Direct File experiment since it started in March, claiming more than $90 million in refunds, according to agency officials.

According to Werfel, the program's expansion "fits firmly within the IRS' commitment to make taxes as easy as possible for Americans, including saving time and money" and would provide people another alternative for filing.

Private tax preparation firms that have generated billions from charging customers to use their software and have spent millions lobbying Congress have fiercely retaliated against the IRS's Direct File program. An average American spends around $140 a year on tax preparation.

Right-leaning American Coalition for Taxpayer Rights spokesperson David Ransom called the Direct File program "unnecessary" due to the availability of free filing choices currently.

Although the forms are difficult, taxpayers may submit their taxes for free by mail, and those with lower incomes can also take advantage of various online free-file schemes.

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