IRS adds another state to Direct File, as House Republicans seek to defund it

The IRS is recruiting another state to participate in its Direct File platform, which lets households file their federal tax returns online and for free.

The Treasury Department announced Tuesday that Oregon will opt into Direct File next year, and expects other states will also do so ahead of the next filing season.

The IRS announced last week it will make its Direct File platform a permanent option for taxpayers to file their federal tax returns, after piloting the system this year with 12 states.

More than 140,000 taxpayers used the platform to file federal tax returns this year — exceeding the IRS’ goal of 100,000 users. About 19 million taxpayers living in those 12 states were eligible to use Direct File this year.

The Treasury Department expects at least 580,000 Oregon residents will be eligible to use the free online filing tool next filing season.

Senate Finance Committee Chairman Ron Wyden (D-Ore.) told reporters that Direct File will give taxpayers more options to file their taxes.

“Direct File is long overdue. It’s the kind of public service the government ought to be providing to Americans and Oregonians whenever they can,” Wyden said in a call Tuesday.

At a committee hearing at the end of this year’s filing season, Wyden praised the IRS for creating a free website that allows taxpayers to file their federal tax returns.

“The website was user-friendly, quick and easy to use. I went out and talked to some of those people who used it, and that was the answer that I got,” he said. “It didn’t hassle users with up charges for add-on services they didn’t need. It got overwhelmingly positive reviews. With Direct File, I believe the IRS has built a good tool that people are going to like, because it saves time, headaches and money.”

Treasury Secretary Janet Yellen said in a statement that expanding Direct File will help taxpayers save time and money, “and ensure they receive the tax benefits they are owed.

“After a successful pilot this Filing Season, we are pleased to expand the program as a permanent offering and welcome Oregon as the first new state to offer this free new option to taxpayers,” Yellen said.

The IRS is adding more states to Direct File as House Republicans propose defunding the program.

The House Appropriations Committee released a fiscal 2025 spending bill earlier this month week that would cut IRS funding by nearly 18% and zero out funding for Direct File.

The full committee advanced the bill last week, and awaits a House floor vote.

Wyden told reporters he’ll “fight with everything I’ve got to protect Direct File.”

“If Republicans in the Congress have the opportunity, they are going to put an end to it,” he said.

Congressional Republicans have called Direct File wasteful and duplicative, since some tax software companies already allow taxpayers below a certain income threshold to file online for free through the Free File Alliance program. 

The IRS and U.S. Digital Service spent a combined $31.8 million to launch the Direct File pilot.

However, Wyden said taxpayers deserve more options in how they choose to file.

Intuit, the maker of TurboTax, no longer participates in the IRS Free File program. But Intuit notified some taxpayers in Oregon that its TurboTax software might not have selected the best deduction option, resulting in a possible overpayment to the state.

The state of Oregon says this issue affects about 12,000 of its residents.

“It was another example of how the big software companies have been upcharging for products that aren’t that great to begin with,” Wyden said.

States that opt into Direct File have options in how they participate.

During the Direct File pilot, taxpayers in Arizona, Massachusetts, New York, and California were directed to a state-run tool to complete their state tax returns, after they filed their federal tax returns.

Taxpayers in Arizona, Massachusetts, and New York were also able to import their information from Direct File directly into the state-run platform, making it faster to file their state tax returns.

“Moving from Direct File to the state tool went very smoothly. Taxpayers were able to bring their information with them. It was able to prepopulate a lot of the information needed for a state tax return. And then taxpayers had to answer just a couple of additional state-specific questions to complete the filing of their state return,” an administration official told reporters.

The IRS limited participation in this year’s  Direct File pilot to taxpayers only reporting certain income types, such as wages on a Form W-2, and tax credits like the Earned Income Tax Credit and the Child Tax Credit.

“Over the next few years, the goal is that direct files eligibility is expanded to cover the most common tax situations, especially those that affect working families,” another administration official told reporters.

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