The IRS announced on Thursday May 30, it will make Direct File a permanent option for filing federal tax returns starting in the 2025 tax season. Taxpayers who can fit within the Direct File eligibility parameters will be able to file their federal tax return for free, directly with the IRS! No middleman, no TurboTax, no headaches. This announcement follows what IRS has viewed as a successful filing season pilot and feedback from a variety of partners. Positive feedback on the pilot from participating taxpayers cited ease of use, trustworthiness, and, unsurprisingly, that it was free.
The IRS will be announcing additional details on the 2025 expansion in the coming months. IRS is now inviting all states to partner with the Direct File program. The agency will report later this year on how many states plan to participate in the program in the 2025 tax season.
The Direct File Pilot – Here’s the Scoop
Earlier in May, the IRS released Publication 5969, IRS Direct File Pilot Program: Filing Season 2024 After Action Report. The report examined the Direct File pilot in detail: the pilot itself, the technology and taxpayer experience, Direct File’s innovative customer support system, integration with state tax systems, and the cost and benefits of the pilot.
The Direct File project for the 2024 tax season was rolled out on a limited basis in 12 participating states for taxpayers with very simple tax situations. The program was available for taxpayers reporting only the following types of income:
- W-2 wage income
- SSA-1099 Social Security income
- 1099-G unemployment compensation
- 1099-INT interest income of $1,500 or less
Direct File was not an option for taxpayers with other types of income such as retirement income, gig economy or business income. Participants in the pilot had to take the standard deduction and could claim deductions only for student loan interest and educator expenses.
Overseas American? No Direct File for You
While the IRS has stated it will be expanding Direct File to cover more tax situations and studying how to make Direct File available to more taxpayers, if you are an American abroad – I think it is safe to say, forget about using the Direct File program. Given the complexity of US tax returns for the American living and working overseas, use of the Direct File program will not be possible. Can you imagine using the Direct File program to file Form 8938 reporting specified foreign financial assets or Form 5471 regarding ownership interests in foreign corporations? Let’s not even consider the complexity in reporting foreign pension plans.
My earlier blog post on the Direct File program made clear that until the US tax system drastically changes, this program will not be a realistic possibility for taxpayers living and working abroad or having foreign investments. Even those Americans abroad with very simple tax returns were not “eligible” under the pilot, assuming they used the foreign earned income and/or housing exclusions.
I cannot see that changing anytime soon.
Posted June 4, 2024
All the US tax information you need, every week –
Forbes Contributor, US International Tax
Named by Forbes, Top 100 Must-Follow Tax Twitter Accounts @VLJeker
Named by Bloomberg, Tax Professionals to Follow on LinkedIn
Subscribe to Virginia – US Tax Talk to receive my weekly US tax blog posts in your inbox. My blog specializes in foreign and US international tax issues.
You can access my papers on the Social Science Research Network (SSRN) at https://ssrn.com/author=2779920
Virginia - US TAX TALK 
One thought on “IRS “Direct File” Will Become a Permanent Option – But Not for Americans Overseas”