Direct File to be expanded in New York in 2025

More New Yorkers will have an opportunity to file their income tax returns next year through a free government e-file service, federal and state authorities said.

The Direct File program, which launched earlier this year on a limited basis in New York and 11 other states, will now be available permanently, the Internal Revenue Service said. The agency also is exploring the feasibility of offering the program nationwide and expanding its capabilities to handle more complicated tax situations.

“Adding Direct File to the menu of filing options fits squarely into our effort to make taxes as easy as possible for Americans, including saving time and money,” IRS Commissioner Danny Werfel said in a statement.

More than 140,000 taxpayers, including 14,000 in New York, participated earlier this year in the Direct File test, which handled only a limited set of incomes, deductions and tax situations. According to a survey of program participants, 90% enjoyed the experience, rating it either as “excellent” or “above average.” When asked what they liked about the program, participants were most likely to mention its ease of use, trustworthiness and that it is free.

In New York, the federal Direct File program is paired with the state’s e-file service so that taxpayers can file their federal and state returns in the same integrated online setting.

Darren Dopp, a spokesman for the New York Tax Department, said the new eligibility criteria for New York's Direct File service should be announced in January 2025.

“We’re looking forward to another year of Direct File, and expanding it to include more people,” Dopp said.

The free e-file service, funded by the Inflation Reduction Act, is expected to cost $64 million to $249 million each year, depending on the number of taxpayers it serves, according to an April report by the U.S. Government Accountability Office. In return, the IRS expects Direct File will save taxpayers $21 million annually in tax preparation costs, not including start-up expenses like computer equipment or other technology-related costs.

Commercial tax prep companies, which could see a decline in market share with a new government competitor on the scene, have repeatedly criticized Direct File as unnecessary and a waste of money.

Intuit, the financial giant that owns the TurboTax filing service, said the decision to make Direct File permanent is “a solution in search of a problem” given that Americans can already file their taxes for free.

The American Coalition for Taxpayer Rights, a lobbying group that represents tax prep companies, said Direct File is redundant, given that some taxpayers with an adjusted gross income of $79,000 or less can already file their taxes through the IRS Free File program.

“Taxpayers would be better served if the IRS focused on promoting the existing IRS Free File Program,” said David Ransom, the group’s spokesperson.