In 2025, more than 30 million Americans can file their taxes for free through the IRS's Direct File program. This program was originally launched in 2024 as a pilot and is expanding to cover 24 states, more of which are expected to join in the future.
The IRS aims to simplify tax filing with Direct File and says the program is easy, secure and cost-free for eligible taxpayers. Here’s what you need to know if you're wondering whether you're eligible and what income types qualify.
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Who Can Use Direct File?
Only those who have lived in the eligible 24 states for all of 2024 can use Direct File. Participating states include:
- Alaska
- Arizona
- California
- Connecticut
- Florida
- Idaho
- Kansas
- Maine
- Maryland
- Massachusetts
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- Oregon
- Pennsylvania
- South Dakota
- Tennessee
- Texas
- Washington state
- Wisconsin
- Wyoming
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This program expansion was made possible by the Biden-Harris Administration's Inflation Reduction Act, providing a significant boost for working-class and middle-income families. According to a news release from the U.S. Department of the Treasury, Americans spend an average of $270 and 13 hours filing taxes. The IRS aims to help individuals and families avoid these costs.
What Types of Income Are Eligible?
With the Direct File program expansions, there will be more eligibility for different types of income, credits and deductions in 2025. Here's a breakdown of the income categories that qualify for free filing through direct file:
- W-2 Wage Income: This covers most employed workers.
- Social Security Income: If you receive Social Security retirement benefits, you can file for free.
- Unemployment Compensation: For those who received unemployment benefits in 2024, this income type is also eligible.
- Interest Income: In 2025, the program expands to allow interest income above $1,500, making it easier for taxpayers with savings or investments to qualify.
- Pension and Annuity Income: This includes non-IRA retirement income, a common source for retirees.
If your income comes from gig work, contract work (Form 1099-NEC), rental properties or self-employment, you'll need to explore other filing options, as Direct File does not yet support these.
Tax Credits and Deductions You Can Claim
In addition to filing for free, Direct File users can take advantage of various tax credits and deductions. For the 2025 season, the program supports the following credits:
- Earned Income Tax Credit (EITC): A vital credit for low-to-moderate-income workers.
- Child Tax Credit: For those raising children under 17.
- Credit for Elderly or Disabled: This credit can provide relief for qualifying seniors and individuals with disabilities.
- Retirement Saver’s Credit: This credit is for those contributing to retirement savings plans such as 401(k)s or IRAs.
Additionally, taxpayers can claim the standard deduction and certain “above-the-line” deductions, including student loan interest and health savings account contributions. Direct File does not support itemized deductions, however.
See Also: How do billionaires pay less in income tax than you? Tax deferring is their number one strategy.
Why You Should Check if You’re Eligible
For eligible taxpayers, Direct File offers a free and timesaving alternative. The program has no hidden fees, is available in Spanish and works seamlessly on smartphones, tablets and computers. For many, this could mean significant savings, both financially and in terms of time spent on tax preparation.
The expanded Direct File program may provide a practical alternative to traditional tax filing methods. As the 2025 tax season approaches, it’s worth checking if you can take advantage of this no-cost filing option, especially if your income falls into one of the supported categories. Stay informed about the latest developments and see if this streamlined process might work for you.
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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