New Jersey joins IRS Direct File free tax program

The Treasury Department and the Internal Revenue Service said Wednesday that New Jersey will be the next new state to join the IRS Direct File tax prep program next filing season. 

The free online filing system was pilot tested last tax season in 12 states, and the IRS announced plans in May to make the program permanent. It invited all 50 states, as well as the District of Columbia, to join the program. The dozen states where it was available include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming. Last month, Oregon became the first new state to join the program for next year. New Jersey will join as the fourteenth state.

However, the future of the program is by no means certain, with the election coming up in November. A pair of Republican lawmakers on the tax-writing House Ways and Means Committee, Rep. Adrian Smith, R-Nebraska, and Rep. Chuck Edwards, R-North Carolina, introduced legislation Tuesday to end the Direct File program and prohibit the IRS from continuing or developing a successor.

The IRS Direct File program was sparked by a provision in President Biden’s Inflation Reduction Act requiring the Treasury and the IRS to study the feasibility of a free tax-filing system. After the study was released last May, a team at the IRS, led by acting transformation and strategy officer Bridget Roberts, quickly developed the system in time for tax season this year.

The IRS and the Treasury said the pilot program saw 140,000 taxpayers claim more than $90 million in refunds and save an estimated $5.6 million in filing fees using the free online filing tool.

“Thanks to President Biden’s Inflation Reduction Act, more than 1 million New Jerseyans will be able to file their taxes online for free, directly with the IRS in filing season 2025,” said Treasury Secretary Janet Yellen in a statement. “Direct File will save New Jersey taxpayers time and money and help ensure they receive the tax benefits for which they are eligible. Direct File is one of the many ways the Biden-Harris Administration is working to lower costs in everyday life, and we are pleased to welcome New Jersey as the next state to offer this new free option to taxpayers.”

“The Direct File tool is revolutionary to our federal tax filing process, and it will make a world of difference for taxpayers in New Jersey and across the country,” said New Jersey Governor Phil Murphy in a statement. “Every year, when tax season rolls around, people are forced to put on their personal accounting hats. For many this can be a stressful — and expensive — time. By cutting costly, for-profit tax filing software out of the equation with the free Direct File tool, we are saving individuals and families in our state time and money.”

However, changes in Congress could end continuation and expansion of the program next year. Rep. Edwards, who co-sponsored the IRS Overreach Prevention Act, pointed out that usage of the long-tunning Free File program with tax software vendors “was used 17 times more than Direct File in pilot states.”

Usage of the Free File program increased last year, due in part to publicity over Direct File. “Only a handful — 0.7% of the 19 million eligible Americans — used Direct File this year, compared to the 26.7 million free returns the tax preparation industry provided,” said the American Coalition for Taxpayer Rights, a coalition of 12 tax preparation, tax software and financial services settlement companies, in a statement in support of Smith and Edwards’ bill. “These statistics show Americans are not interested in the federal government completing their taxes. The IRS could better use these resources to strengthen other, more popular free filing programs, such as the Free File Alliance, and improve customer service.”