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IRS makes free tax return program permanent and is asking all states to join in 2025

FILE - A sign outside the Internal Revenue Service building is seen, May 4, 2021, in Washington. The government is making permanent its new free electronic tax return filing system and expanding to taxpayers in all 50 states. (AP Photo/Patrick Semansky, File) (ASSOCIATED PRESS)

WASHINGTON (AP) — The IRS said Thursday it will make permanent the free electronic tax return filing system that it experimented with this year and is asking all 50 states and the District of Columbia to help taxpayers file their returns through the program in 2025.

The IRS tried the Direct File project for the 2024 tax season on a limited basis in 12 states for people with very simple W-2s, the employee’s wage and tax statement.

The agency also is inviting all states with a state income tax to sign up and help people file their state returns for free. During the 2024 pilot, tax agencies in Arizona, Massachusetts, California and New York helped people directly file their state taxes.

IRS Commissioner Danny Werfel said the IRS will report later this year on how many states plan to participate in the program in 2025.

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The IRS was tasked with looking into how to create a “direct file” system as part of the money it received from the Inflation Reduction Act signed into law by President Joe Biden in 2022. It gave the IRS nine months and $15 million to report on how such a program would work.

“The IRS has been underfunded for decades, so taxpayers haven’t gotten the support they deserve,” Treasury Secretary Janet Yellen told reporters in a call Thursday. “Thanks to the Inflation Reduction Act, we’re changing this.” The IRS is part of the Treasury Department.

Since the Direct File trial began in March, more than 140,000 taxpayers used it to file their tax returns, claiming more than $90 million in refunds, agency officials said.

Werfel said expanding the program will provide another filing option to taxpayers and "fits squarely into the IRS’ effort to make taxes as easy as possible for Americans, including saving time and money."

“We know there is more analysis to do, but we feel that we have enough information at this point to make the decision,” he said. "And an early decision on 2025 is critical for planning -– both for the IRS and for additional states to join the program.”

The IRS has face intense blowback to Direct File from private tax preparation companies that have made billions from charging people to use their software and have spent millions lobbying Congress. The average American typically spends about $140 preparing their returns each year.

David Ransom, a spokesman for the right-leaning American Coalition for Taxpayer Rights, said the Direct File program was “unnecessary” because there already are free filing options available.

Taxpayers can file their taxes for free through the mail, though the forms are complicated, and there are other online free-file programs available to people under certain income limits.

“Taxpayers would be better served if the IRS focused on promoting the existing IRS Free File Program,” he said.

Derrick Plummer, a spokesman for the big tax preparation company Intuit, said the announcement “doesn’t change the fact that this program is a solution in search of a problem and every American can already file their taxes for free, without any cost to the government or taxpayers.”

Others celebrated the news.

Adam Ruben, a vice president at the left-leaning Economic Security Project said his organization is "already working with our partners in states across the nation to support the expansion of Direct File next year so more taxpayers can take advantage of free and simplified tax filing in the next tax season.”

For the Direct File program to keep growing, it will need continued funding under the Inflation Reduction Act, which initially included $80 billion for the IRS. Some of that has since been diverted by lawmakers to other programs.

House Republicans built a $1.4 billion reduction to the IRS into the debt ceiling and budget cuts package passed by Congress last summer. A separate agreement will take an additional $20 billion from the IRS over the next two years to divert to other nondefense programs.

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Follow the AP’s coverage of the IRS at https://apnews.com/hub/internal-revenue-service.