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On Thursday, the Internal Revenue Service announced that it would be inviting all 50 states, including Alabama, to take advantage of its “Direct File” program.
Direct File is a new option for taxpayers allowing them to choose to file their taxes for free directly through an IRS website.
“Giving taxpayers additional options strengthens the tax filing system,” said IRS commissioner Danny Werfel. “And 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.”
A joint report by the Economic Security Project and Code for America found that Direct File would save taxpayers $106 for each dollar spent on the program. According to the IRS, the average American household currently spends $270 every year on filing their taxes.
This announcement follows what the IRS has characterized as a successful pilot program held across twelve states, including Arizona, California, and Texas. Over 140,000 taxpayers took advantage of the pilot program and they “claimed more than $90 million in tax refunds and reported $35 million in tax balances due.”
90% of taxpayers surveyed after using Direct File reported that their experiences with the website were “Excellent” or “Above Average.”
The IRS is currently “inviting all states to partner with Direct File next year.” The agency will reportedly help make Direct File available in any states that are willing to work with them. However, the Direct File program has drawn pointed criticism from state-level Republican politicians, including references to the disastrous 2013 rollout of Healthcare.gov.
In January, thirteen state attorneys general sent a joint letter to Treasury Secretary Janet Yellen calling the program “a clear attempt by the Biden administration to circumvent … constitutional limitations.”
On March 25, state financial officers from eighteen states sent a letter to Yellen and Werfel calling Direct File “a solution in search of a problem.” They also pointed to a private estimate that the program’s “actual costs would be closer to those of Healthcare.gov, which has cost the taxpayers tens of billions of dollars.”
Alabama officials did not sign onto either letter. And despite the financial officers’ concerns, the Direct File website so far has cost significantly less than initially projected. According to Werfel, developing the website cost the IRS $10.5 million and running the website during the pilot cost $2.4 million.
The IRS’ 2024 Strategic Operating Plan states that $75 million is currently budgeted for the program’s national rollout in 2025, but total costs will likely vary depending on how many states accept the agency’s invitation.
During the pilot program, handling state taxes was one major implementation hurdle, and likely an ongoing concern as the program expands to more states. However, Code for America worked with Arizona and New York to create “FileYourStateTaxes,” a tool meant to streamline this process, and says it “hopes to share the lessons from 2024 with any state looking to join Direct File.”
Whether Alabama taxpayers are able to take full advantage of Direct File’s national rollout and file their tax returns for free on the IRS’ website will largely depend on whether the state government works with the federal agency.
In the press release announcing the program’s national launch, the IRS said that more details will be released about this process over the next year.
