IRS expands free online filing program to three states

The new free online tax filing program from the IRS is now moving beyond its initial tranche of pilot states without an income tax.

The IRS said Friday it has begun implementing the test phase of the program in Arizona, New York and Massachusetts — all states with an income tax. The test pilot will be carried out in a total of 12 states.

Arizona has a flat income tax of 2.5 percent, Massachusetts has a 5 percent income tax, and New York has a progressive income tax that gets bigger for taxpayers who make more money.

“Internal testing continues, with additional testing underway to ensure Direct File is successfully integrated with state systems,” IRS direct file chief Bridget Roberts said in a statement released Friday.

IRS said in a statement last week that more than a dozen taxpayers from an initial testing group of 1,200 had participated in the testing program.

“Early users report satisfaction with Direct File and the customer service representatives they have interacted with via live chat. First filers have indicated that Direct File is straightforward and easy to use, and many have successfully filed their taxes in less than 30 minutes,” IRS said in a statement.

Media outlets were given a tour of the new system in January, which is similar to some pieces of commercial tax preparation software but generally more straightforward and less interactive in design.

In its initial form, direct file can handle wage income, rather than investment income, and can process a limited number of tax credits, including the child tax credit and the earned income tax credit.

Forms are not pre-populated, and taxpayers need to input their tax information manually. But experts say the program could be scaled up in the future.

“If this pilot is successful, the program will be expanded significantly next filing season,” Villanova University tax law professor Leslie Book told The Hill.

Republicans have been solidly opposed to the direct file program and challenged IRS Commissioner Danny Werfel’s authority to roll out such a program in a Thursday committee hearing.

Werfel said Thursday that the direct file program is just one of many options available to citizens who file their taxes.

“We do have a responsibility and an authority to offer taxpayers different approaches for how to meet their tax obligation,” he said. “What’s critical about the direct file solution is that it is an option. There is no mandate for anyone to use this solution.”

The 2022 Inflation Reduction Act provided $15 million to study the feasibility of the direct file system. The study found that nearly three-quarters of taxpayers would be either "somewhat interested" or "very interested" in such a system.

The IRS said Friday it will release regular updates on direct file as the system continues its testing phase.