Direct File enters its second year with 24 states participating

Direct File, the IRS’s free online-filing tool which allows taxpayers to file their federal income tax returns directly to the government at no cost, is entering its second tax season with 24 states participating, double the amount from last year.

This year, five new states — Arizona, Idaho, Maryland, New Jersey and North Carolina — are participating in the tax-filing program, which aims to improve efficiency and reduce common filing errors, such as entering the wrong income.

The IRS began testing Direct File with 12 states in 2024 after drafting a letter to the Federation of Tax Administrators to gauge interest. During the pilot program, the civic tech nonprofit Code for America launched FileYourStateTaxes, a companion filing tool that allowed Direct File taxpayers in Arizona and New York to easily file their state returns, too.

“There was a huge question of if we could make states’ integration with a federal tool possible, and not only possible, but easy for taxpayers to utilize, so that it’s not a stressful, separate tax filing experience, but it’s all just one seamless process,” Courtney O’Reilly, associate director of tax programs at Code for America, told StateScoop. “Luckily, we were able to do it.”

Code for America last May announced it would expand the program by bringing FileYourStateTaxes to additional states in 2025. 

O’Reilly said one of the biggest lessons Code for America learned from the program’s first iteration is how to ensure federal data transfers correctly and to ensure that taxpayers can see that information without having to re-enter it.

“Taxpayers don’t need to answer additional questions because they’ve already provided the bulk of the information on the federal return,” O’Reilly said of the integration improvements the nonprofit’s made to the tax-filing tool.

O’Reilly said that the IRS’s Volunteer Income Tax Assistance, known as VITA, has been a pivotal part of Direct File’s successful adoption. VITA sites are centers that offer free tax return preparation to qualified individuals as well as a reliable internet connection in rural communities.

“There is a misconception that people in these areas don’t want to access digital services, when actually they’re pretty familiar with using them in other spaces,” she said.

During his confirmation hearing on Jan. 16, Treasury Secretary Scott Bessent said he plans to keep Direct File in place this year, but left the question of the tool’s future availability up in the air. Under the Biden administration, the IRS last year announced plans to make Direct File permanent after positive user feedback.

Amanda Renteria, Code for America’s chief executive, told StateScoop that the Trump administration, which she said has shown a propensity for modernization and technology, should reconsider shelving the tax-filing tool.

“We hear so much about modernization and losing that human touch,” Renteria told StateScoop on Monday. “When you put it all together, we are making people’s lives easier, right? Thirty-two million people can have their life just a little bit easier, especially in an uncertain transition period of time. This is an opportunity for this administration to really champion a model that is proven to work.”