The U.S. Department of the Treasury and the Internal Revenue Service (IRS) recently announced that Connecticut and Maine will be the 17th and 18th states to join the 2025 Direct File program.

The IRS created a Direct File Pilot Program during the 2024 filing season. Approximately 140,000 taxpayers claimed $90 million in refunds and saved an estimated $5.6 million in filing costs. The IRS has announced it is planning to expand the Direct File program for the 2025 filing season.

The IRS has invited additional states to participate in the expanded program. Oregon, New Jersey, Pennsylvania and New Mexico previously announced they will join the Direct File program. Treasury Secretary Janet Yellen stated, "After a successful pilot this Filing Season, we are pleased to expand the program as a permanent offering and welcome Connecticut as the latest new state to offer this free option to taxpayers."

About 290,000 Connecticut taxpayers will be eligible to file a basic income tax return with Direct File. The return will include W-2 wage income, Social Security income, unemployment compensation, a limited amount of interest income and some credits. Taxpayers must use the standard deduction.

Maine also will join Direct File. The Maine Department of Administrative and Financial Services noted, Direct File is a "simple, convenient, and fast system for filing their federal taxes that will spare Maine taxpayers tax preparation filing fees."

Maine currently operates a state income tax filing program. The Maine Tax Portal will not be part of 2025 Direct File but is expected to be integrated with Direct File for the 2026 filing season.

Maura Pillsbury is a representative of the Maine Center for Economic Policy. She stated, "We are incredibly excited to hear that Maine will opt into this fantastic program. This is a big win for tax fairness and will save Mainers tens of millions of dollars in filing fees and unclaimed tax credits."

The Direct File program claims a high degree of satisfaction. 90% of the Direct File users ranked their experience as "Excellent" or "Above Average."

However, several Senators expressed concern about shortcomings of the Direct File program in a July 31 letter to Commissioner Daniel Werfel. The Senators note, "We write with serious concerns regarding your agency's recent unilateral and unauthorized action to create a permanent Internal Revenue Service (IRS) Direct File tax preparation program. Despite numerous problems and objections from members of Congress, the IRS announced the launch of its permanent Direct File program on May 30, 2024."

The letter expresses multiple concerns. The Direct File program is limited to very basic returns. It excludes categories of taxpayers such as those who "own their own businesses, collect income from property and investment, or work as independent contractors, such as ride-share drivers and delivery workers."

In addition, the Direct File program is not compatible with most state tax returns. A letter from 21 state financial officers to the IRS indicated this will create "challenges for taxpayers and state treasurers and the costs of Direct File far outweigh any potential benefits it may confer to taxpayers."

There is controversy regarding the cost estimates of the program. The IRS claims that Direct File will cost $249 million each year. Alternatively, the existing Free File program involves no cost to taxpayers.

Editor's Note: Secretary Yellen is clear that Direct File is expected to be permanent. Several states have state tax filing portals and are likely to join Direct File in 2025 or 2026. The opinions by members of Congress may lead to greater efforts to correct Direct File's shortcomings.