It’s tax season again, and the IRS has made an exciting announcement regarding its free-filing tax software, IRS Direct File. The program, initially launched in 2024 in 12 states for individuals with basic tax filing scenarios, is now expanding its pilot launch in 2025 to include 12 new states. This expansion brings the total number of eligible states to 24, opening up the program to a broader audience.
Despite the growth in states covered and the inclusion of more tax scenarios, my earlier recommendation to skip using IRS Direct File still stands. Let’s delve into who the pilot is expanding to and why I believe it falls short as a viable tax filing option for most taxpayers.
What States are eligible for IRS Direct File in 2025?
- Arizona
- California
- Florida
- Massachusetts
- Nevada
- New Hampshire
- New York
- South Dakota
- Tennessee
- Texas
- Washington state
- Wyoming
- Alaska
- Connecticut
- Idaho
- Kansas
- Maine
- Maryland
- New Jersey
- New Mexico
- North Carolina
- Oregon
- Pennsylvania
- Wisconsin
To utilize Direct File, you must have been a resident in one of these 24 states for the entire tax year.
New Tax Scenarios Covered by IRS Direct File in 2025
Aside from expanding to new states, IRS Direct File now covers more tax scenarios for the 2025 filing season. In addition to those previously covered, the program now includes:
- 1099’s for interest income over $1,500
- Retirement income
- 1099 for Alaska residents reporting the Alaska Permanent Fund dividend
- Child and Dependent Care Credit
- Premium Tax Credit
- Credit for the Elderly and Disabled
- Retirement Savings Contribution Credits
- Deductions for Health Savings Accounts
What is Still Not Covered by Direct File in 2025
Despite the additions, some tax scenarios are still not covered by IRS Direct File, including:
- Itemized Deductions
- Income sources like gig economy earnings, rental or business income
The eligibility of specific credits and deductions, such as the Clean Vehicle Tax Credit or new home energy tax credits and rebates, remains unclear.
Who Should (and Shouldn’t) Use IRS Direct File in 2025?
While the extension of Direct File is a step in the right direction, its limitations on covering all income, credit, and deduction scenarios pose a significant drawback. The software currently only integrates with federal tax filing, leaving state tax filing integration as a separate process. For individuals in states without income tax or with integrated filing (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming, Arizona, California, Massachusetts, New York, and Washington), Direct File may be worth considering. However, for the majority of taxpayers in states not covered, the inconvenience of separate state filing outweighs the benefits of using IRS Direct File for the 2025 tax season.
In conclusion, while the expansion of IRS Direct File is a positive development, the lack of comprehensive coverage and state tax integration remains a significant hurdle for most taxpayers. As the program evolves, addressing these issues will be crucial in making it a more viable option for all filers.
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