IRS Direct File is here to stay and will be available to more Americans next year

Direct File, the IRS’ free electronic tax filing system, is here to stay and will be available to more taxpayers next year, the government said on Thursday.

All 50 states and Washington D.C. are invited to join the permanent program next year, the Treasury and IRS said. This follows a pilot program this year in a dozen states that saw more than 140,000 taxpayers claim more than $90 million in refunds and save an estimated $5.6 million in filing costs, the agencies said. Over the next few years, the IRS said it expects to make Direct File an option that supports most common tax situations.

“Giving taxpayers additional options strengthens the tax filing system,” IRS Commissioner Danny Werfel said in a statement. “And adding Direct File to the menu of filing options fits squarely into our effort to make taxes as easy as possible for Americans, including saving time and money.”

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Critics remain

Direct File received high marks from pilot users this season with 90% of more than 11,000 users ranking their experience as “excellent” or “above average,” the IRS said.  But many vocal critics, particularly among private tax preparation and software companies, remain.

“Less than 1% of the 19 million taxpayers eligible for Direct File this year chose to use it,” said David Ransom, spokesperson for the American Coalition for Taxpayer Rights, formed by such companies. “We believe Direct File is costly, confusing and unnecessary, particularly in light of the fact that commercial tax preparers provided more than 23 million free returns this year as well as another 3 million free tax returns through the IRS Free File Program. Taxpayers would be better served if the IRS focused on promoting the existing IRS Free File program.”

IRS Free File is a partnership with private tax preparation companies to help low-income Americans file their taxes using guided software for free. Those who don’t qualify can still use the free fillable forms. IRS Free File was criticized for offering too little support or nudging users towards paid products.

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IRS says there’s room for everyone

“As a permanent filing option, Direct File will continue to be one option among many from which taxpayers can choose,” the IRS said in its release. “It is not meant to replace other important options by tax professionals or commercial software providers, who are critical partners with the IRS in delivering a successful tax system for the nation.”

It also said it remains committed to Free File, noting it signed a five-year extension with industry to continue Free File.

“The IRS delivered a product that people loved, and proved beyond a doubt that the government can make it easier for Americans to file their returns,” said Amanda Renteria, chief executive of nonprofit Code for America, which works to improve government technology. Code for America partnered with Arizona and New York this year to launch FileYourStateTaxes, a companion tool to Direct File users to file state returns.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.